More on IRS Attempts To Subpoena Information Related to Micro-Captives

We previously reported on the appeal of the state of Delaware to the Third Circuit Court of Appeals with respect to a District Court determination that Delaware would have to produce material filed with the state in connection with the formation of certain micro-captives in response to an IRS summons. At that time, we noted that the Third Circuit Court of Appeals had affirmed the District Court decision. Delaware has now petitioned the Third Circuit Court of Appeals for an en banc hearing (which is a hearing by all of the judges of the Circuit to review a decision of the three-judge panel which originally heard arguments in the case). At issue is whether the McCarron Ferguson Act, which, in general, leaves the business of insurance to the states, protects the Delaware State filings because, under Delaware law, they are confidential.

In addition, we previously reported that Captive Alternatives was in a dispute with the Internal Revenue Service with regard to the production of over one million documents. The court considering the matter had held that an assertion of privilege would have to be made on a document-by-document basis and not based on "categories" of documents. Captive Alternatives has now applied to the court for a procedural ruling that would allow it to deal with some of the production electronically (which would reduce the time and cost of production) and would allow it to "claw back" privileged documents that might be inadvertently produced given that, under the electronic production, each document would not be reviewed by counsel before production. The IRS opposes the position taken by Captive Alternatives. It will be interesting to see the District Court's holding in this situation given the magnitude of the number of documents to be produced.

Copyright © 2023 International Risk Management Institute, Inc. (IRMI). All rights reserved.