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IRS takes action against potentially abusive Micro-Captive Tax Shelters

Attorney Gary Mauney represents victims of abusive tax shelters in civil litigation.

The IRS is ramping up its Micro-Captive tax shelter promoter investigations. In Marietta, Georgia, the IRS is hotly pursuing what is known as a “summons action” against the law firm of Moore, Ingram, Johnson & Steele, LLP (“Moore Ingram”). The IRS contends that Moore Ingram may be “liable for, among other things, organizing and promoting abusive tax shelters.” An IRS summons action occurs when the subject of an IRS subpoena does not comply with the IRS’s subpoena’s document requests, and the IRS goes to court to enforce it.

Taxpayers are often surprised to learn that the attorney-client privilege does not protect many documents that pertain to unlawful or abusive tax shelter arrangements. Through a summons action, the IRS often learns the names of individual taxpayers who have participated in abusive tax shelters. Over the years, the IRS’s rate of success in summons actions has been high. If you participated in an abusive tax shelter, and the IRS pursues a summons action against one of your advisors or accountants, odds are your name is going to be produced and you will be audited as a result.


THE MICRO-CAPTIVE IRS SUMMONS ACTION AGAINST MOORE INGRAM

In a ruling by a Georgia federal court on July 20, 2020, the Court concluded that “the fact that several of [Moore Ingram’s] clients were under investigation for allegedly using abusive tax shelters proves the IRS had a legitimate basis for investigating [Moore Ingram] for allegedly promoting such abusive tax shelters to its clients.” Although the IRS is at the beginning of the Moore Ingram action, and not the end of the investigation of the tax shelter at issue, as well as Moore Ingram’s purported role in it, it is evident from the summons action that the IRS means business with respect to this Micro-Captive.


THE MICRO-CAPTIVE IRS SUMMONS ACTION AGAINST CRI, PINNACLE & MILLIMAN


The Court’s July 20th ruling also reflects that parallel summons actions have taken place against Captive Resources, Inc. (“CRI”), Pinnacle Actuarial Resources, Inc. (“Pinnacle”), and Milliman, Inc. (“Milliman”). CRI is a large captive insurance advisor, whereas Pinnacle and Milliman are actuaries. Apparently, the IRS believes that some or all of these entities can be categorized as promoters of the shelter at issue.


THE MICRO-CAPTIVE IRS SUMMONS ACTION AGAINST ARTEX AND TRIBECA


Meanwhile, in Delaware, the IRS is pursuing a similar summons action against Artex Risk Solutions, Inc. (“Artex”) and Tribeca Strategic Solutions, LLC (“Tribeca”). Tribeca is fully owned by Artex, and “the IRS is looking at whether their actions have promoted [unlawful] micro-captive insurance schemes and whether their actions may result in [IRS promoter penalties.”


MICRO-CAPTIVE STRUCTURE MEETS CONSECUTIVE LOSSES IN THE U.S. TAX COURT

Over the last three years, the United States Tax Court has struck down three separate micro-captive insurance transactions where the taxpayer sought to shield income from taxation through sham insurance companies. Particularly, the Tax Court held in those cases that the transactions at issue did not constitute insurance where they involved a circular flow of funds, were not the produce of arm’s-length considerations, used premiums that were not actuarially determined, covered non-existent risks, and involved unlicensed insurance companies created for no legitimate non-tax purpose. Not surprisingly, these legal critiques are the same criticisms asserted by the IRS over the last twenty years to invalidate virtually every transaction “listed” as an abusive tax shelter.


DON'T WAIT TO TAKE ACTION AGAINST THE PROMOTERS OF POTENTIALLY ABUSIVE TAX SHELTERS UNDER IRS INVESTIGATION OR AUDIT 


If you participated in a Micro-Captive tax shelter, or any other abusive tax shelter, do not wait until your state civil statute of limitations runs against you to investigate and to take action. Promoters frequently discourage taxpayers from seeking litigation attorneys by claiming that doing so will hurt their IRS audit prospects. This is an old yarn, spun mainly by promoters seeking to avoid liability for their improper conduct and negligent or fraudulent advice. Promoters know, for instance, that if their scheme involves a fraudulent and circular flow of funds, or lacks economic substance, the IRS is going to ultimately prevail. Once that happens, the taxpayer is going to be subject to back taxes, interest, and penalties. Not to mention the hefty fees and “investment” costs that were paid to the promoters for the shelter. By waiting too long to seek litigation counsel, you run the risk that you will have no chance to recoup any of these damages from any of the wrongdoers.


EXPERIENCED ABUSIVE TAX SHELTER REPRESENTATION

Attorney Gary Mauney of Mauney PLLC has successfully represented dozens of clients in abusive tax shelter cases across the United States. From Florida, to Georgia, to North Carolina, to Washington, D.C., to New York, to Chicago, to Texas, to California. Sometimes these cases can be resolved by pre-suit negotiation, other times these cases must be aggressively litigated in court or in arbitration. Abusive tax shelter litigation presents unique issues, and requires extensive knowledge of the applicable law, alternative investments (e.g., derivatives), corporate structures, and obscure facets of the tax code. To successfully advance your case, you will also need access to very specific experts, from forensic accountants to tax law professionals. There are not many attorneys and experts qualified to successfully handle these cases.


Contact Gary Mauney at Mauney PLLC for a confidential and free evaluation of your abusive tax shelter case. Telephone us at 704/945-7185 or email us at info@mauneypllc.com.