The Supreme Court of the United States ruled on Monday that a jailer's challenge to a microcaptive reporting requirement is not prohibited by federal law, reversing a federal appeals court decision in the case.
In CIC Services LLC v. Internal Revenue Service heard by the 6th U.S. Court of Appeals in Cincinnati last year, Knoxville, Tennessee-based CIC, sued to stop an IRS reporting requirement for microcaptives, which often called 831 (b) taxes.  In recent years, the IRS has won several court rulings claiming that microcapacities are not engaged in insurance but are instead used by wealthy individuals and family businesses to avoid taxes. As part of its investigations into microcaptives, in 201
The CIC sued the IRS, claiming that the reporting requirement violated the Administrative Procedure Code and the Congressional Review Act, and that it required a review by Congress before they came into force.
The IRS calculated and claimed that the CIC Services suit was, among other things, obstructed by the Prohibition Order Act. That law requires taxpayers to pay a disputed tax and then sue for a refund if the latter is deemed invalid.
Writing for a unanimous Supreme Court, Deputy Justice Elena Kagan said: “A reporting requirement is not a tax; and an action brought for the repeal of such a rule is not one which requires the assessment or collection of a tax. This is true even though the reporting rule will help the IRS bring in future tax revenue – here, by identifying fraudulent insurance transactions. "
And the penalties for not meeting the reporting requirement are significant," she said.
"CIC estimates that it will have to spend" hundreds of hours of labor and more than $ 60,000 a year "to comply with the notice. … Costs of this kind may well exceed, or even dwarf, the tax penalties for an offense, "Justice Kagan wrote.
The case was taken for further hearing in the light of the Supreme Court's decision.