US Senator asks Treasury to suspend IRS microcaptive investigation

United States Senator Cory Gardner has written to the US Treasury to request the Internal Revenue Service (IRS) investigations into microcaptives be suspended until cases in the Supreme Court are resolved.

In a letter addressed to Secretary of the Treasury Steve T. Munchin and Commissioner of the IRS Charles P. Rettig, Sen. Gardner “respectfully” requested that the review of microcaptives cease.

“While I support the IRS’s goal of eliminating bad actors in the industry, I respectfully request that the Service suspend its broad review of the industry until resolution of the current litigation in the United States Court of Appeals for the 10th Circuit,” Senator Gardner said.

In March 2020, the IRS sent 150,000 letters to microcaptives instructing them to comply with information requests about their structure and transactions. Sen. Gardner said the letters were sent with “poor timing”.

“Aside from poor timing given the fast-developing public health crisis, the letter also requested information, under penalty of perjury, that many may not be able to provide,” he said.

“More importantly, the Tenth Circuit is currently considering an appeal that will likely provide significant guidance for the industry.”

The referenced court case has been brought to the US Supreme Court by captive manager CIC Services, who claim that Notice 2016-66 enforces illegal regulations.

Senator Gardner also wrote to the Treasury and IRS about the “serious concern” in the captive industry regarding Tax Court decisions and the Reserve Mechanical Corp. v. Commissioner case.

“There is serious concern within the industry that the Tax Court’s decision is contrary to established law and creates a marked change in the rules for the industry,” the senator said.

He concluded the letter but once again requesting IRS action be suspended until the CIC Services case is resolved.

“I request that the IRS suspend action on the letter until resolution of the case. A decision affirming the Tax Court’s ruling would provide important guidance for participants in the industry to consider in deciding whether to continue to utilize the statutorily created tax deductions for these arrangements,” the senator said.

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