In the ruling, handed down at the US District Court for the Eastern District of Tennessee, Judge Travis McDonough granted the IRS’s motion to dismiss. He explained that a ruling in CIC Services and Ryan’s favour would “restrain the IRS’s assessment or collection of taxes”.
In a statement, CIC Services said: “While the decision is not surprising in light of the court’s previous denial of our request for an injunction, it is still disappointing.”
CIC Services and Ryan had accused the IRS of unfairly labelling captives as tax avoiders in Notice 2016-66.
It requested for an injunction to delay Notice 2016-66 for micro captives.
The IRS’s notice expressed concern that micro captive transactions had the potential for tax avoidance or evasion.
CIC and Ryan said that the notice constitutes a “legislative-type rule” that “fails to comply with mandatory notice-and-comment requirements under the Administrative Procedures Act”, and requested a preliminary injunction that would stop the IRS from enforcing the notice’s requirements. However, in April, the court denied the request.
Sean King, principal at CIC Services, called the decision “especially disappointing” in light of a recent ruling by the United States District Court for the Western District of Texas in the Chamber of Commerce v IRS case, which went the opposite way.
King said: “Addressing the identical issue present in our case and using the same legal reasoning articulated in our briefs, that court concluded that the Chamber of Commerce’s lawsuit was not barred by the Anti-Injunction Act.”
He explained that two different judges have examined the identical issue and come to “contradictory conclusions”.
King said: “Unfortunately we were on the losing side of one of those opinions. We are considering our options.”