U.S. District Court Upholds IRS Rule on Captive Insurance, Dismisses Claims of Overreach, Arbitrary Action

The U.S. District Court for the Eastern District of Tennessee held that the IRS’s final rule and regulations regarding captive insurance transactions did not violate the Administrative Procedure Act, granting summary judgment to the government. Taxpayer, a firm that helps small businesses form and manage captive insurance companies, challenged the rule as exceeding statutory authority and being arbitrary and capricious. The court held that the IRS did not exceed its authority because the rule only imposed reporting requirements and did not affect eligibility for IRC §831(b) tax benefits. The rule was not arbitrary and capricious because the administrative record contained ...