‘Liquidity Problems’ Take Spotlight in Captive Insurance Appeal

A Fifth Circuit judge grilled a Texas doctor during oral arguments Tuesday over his deductions for an insurance arrangement the government says is a phony scheme to avoid paying taxes.

Judge Andrew S. Oldham questioned whether Bernard Swift, the owner of Texas MedClinic, reasonably could claim that his captive insurance arrangement was bona fide insurance for tax purposes, pointing out that it was illiquid and allegedly failed to distribute risk.

Swift, whose case is one in a wave of captive insurance disputes with the IRS, appealed the US Tax Court’s decision to deny his deductions on the grounds, arguing that ...