The second lawsuit, filed in the US District Court for the Eastern District of Tennessee on 27 March, has added Texas-based tax firm Ryan as a plaintiff.
CIC’s first lawsuit was filed in the same court at the end of December, and sought injunctive relief to permanently put on ice Notice 2016-66’s 30 January deadline for responses.
But the IRS granted a 90-day extension, setting the new deadline at 1 May.
In its first lawsuit, CIC argued that Notice 2016-66, which formally identifies micro captives as “transactions of interest” and requires extensive reporting back to the IRS, was “unlawfully issued” because it didn’t comply with the mandatory notice-and-comment provisions of the Administrative Procedure Act.
Notice 2016-66 is also “arbitrary and capricious and ultra vires in nature”, lacking the Administrative Procedure Act’s requirement for underlying authority and a reasoned analysis footing.
CIC Services principal Sean King was highly critical of Notice 2016-66 earlier this year.
He said: "Notice 2016-66 undermines important public policies as codified by Congress, unfairly targets small businesses, attempts to administratively repeal Internal Revenue Code Section 831(b), impinges upon the exclusive authority of the states to regulate and define insurance, runs in contravention to court precedent, has many unintended but devastating consequences, and subverts the rule of law."
According to King, after five years of audits and investigations, the IRS should have all the information it needs to spot abusive captive insurance arrangements from legitimate ones.