IRS Defends Microcaptive Insurance Rule Against Court Challenge

The IRS defended a rule imposing extra scrutiny on microcaptive insurance arrangements, telling a federal judge in Texas that the move is necessary to deter fraud.

Responding to a Texas company’s request to block enforcement of the new rule that went into effect earlier this year, the agency said in a Sept. 5 brief that the regulation deters tax avoidance.

Drake Plastics Ltd. also lacks standing to sue, can’t show that the rule imposes irreparable harm to the company, and can’t prove that the IRS’s rulemaking process violated the Administrative Procedure Act, the brief said.

In a microcaptive insurance arrangement, ...