(Southern Pines)…. On Friday, October 19, the US 6th Circuit Court of Appeals in Cincinnati, Ohio heard oral arguments in the pending case where CIC Services, LLC challenged IRS Notice 2016-66. Lane Brown, NCCIA VP for Governmental Affairs, attended the oral argument and assisted with Adam Weber in preparing the case for the October 19 hearing.
The IRS Notice created a “statutory type” obligation for micro-captives to report certain transactions to the Internal Revenue Service. A Tennessee Federal District Judge had dismissed the challenge in November 2017. Relying on a similar DC Circuit Court case, Florida Bankers v. US Treasury, the two participating judges threw cold water on the arguments advanced by CIC Services, perhaps previewing their decision that the “AIA” (Anti-Injunction Act) blocked the challenge.
As a sign of the Circuit Court’s reluctance to block Treasury actions, it had just ruled on October 15 in favor of the IRS on a much watched case involving a non-profit tax exempt organization (a country club) that had unrelated business taxable income which it sought to shelter with club operating profits. Judge Nalbandian, who asked the most questions in the CIC arguments, was in the majority in the earlier October ruling.
While the Court did not give any indication of how soon it might release its ruling, there are three possible outcomes: it could (1) affirm the earlier TN ruling; (2) reverse the TN ruling and remand for further consideration; or (3) issue a split decision, ruling OK to enjoin IRS from requiring Captives to file certain data for its non-compliance with the APA, but not restricting IRS from assessing penalties (taxes) for non-compliance with 2016-66.
We anticipate affirmance of TN decision, as Judge (now Justice!) Brett Kavanaugh wrote the majority opinion in Florida Bankers, to which Judge Nalbandian was most deferential. Looking at 6th CCA procedural histories, a decision might come as early as 60 days.
Adam Weber, counsel for CIC Services, was well prepared for the oral argument, and without being intimidated, he parried quite well all questions from the bench. The IRS attorney was apparently not all that well prepared, and at times appeared both boring and a little arrogant. NCCIA will continue to keep its members updated on circuit court developments.