Delaware Department Of Insurance Loses IRS Summons Fight For Artex And Tribeca Captives But Can Appeal
I have previously written about the lawsuit filed by the U.S. Department of Justice to enforce an IRS summons directed to the Delaware Department of Insurance (DDOI) for its e-mails and other documents relating to the investigation of Artex Risk Solutions, Inc. (which is affiliated with Arthur J. Gallagher & Co.), and Artex's predecessor, Tribeca Strategic Advisors, LLC, which was a prolific if not hyper-aggressive marketer of numerous so-called risk-pooled 831(b) microcaptive tax shelters. Basically, the IRS issued a summons to the DDOI for its information relating to numerous of the Artex microcaptives domiciled in Delaware, and the DDOI refused to produce the documents on the dubious basis that § 6920 of the Delaware Insurance Code requires those documents to be held in confidence.
In our latest episode, U.S. Magistrate Judge Christopher J. Burke has ruled in favor of the U.S. Department of Justice and against the DDOI, and recommended that the DDOI be required to make production of the Artex documents. The matter now goes to the U.S. District Court for the District of Delaware to decide whether the U.S. Magistrate Judge's ruling was correct. pgslot
This case has its genesis in the summons by the IRS to the DDOI for information relating to approximately 200 captive certificates of authority (a/k/a "insurance licenses") issued by the DDOI to microcaptives of Artex and Tribeca that were domiciled in Delaware. Starting in 2018, the DDOI started what is known by litigators as a "slow roll" production, i.e., parceling them out a few at a time, but for only 21 of the Delaware-licensed captives. As for the other 180-odd microcaptives whose information was sought, Delaware refused to provide these on the basis of § 6920 of the Delaware Insurance Code, which requires such information to be kept confidential, and filed a motion to quash the DOJ's petition, or in the alternative the IRS's summons.
Part of the DDOI's defense was that the IRS either already had many of the documents that it sought, or could obtain these documents directly from the microcaptive themselves. But many of the sought documents were e-mails, and the court ruled that the IRS was entitled to the DDOI's version of the e-mails and not just be content with whatever were also produced by the microcaptives that are the target of audits. Additionally, it appeared that Artex was itself stonewalling the IRS in the production of documents, so the IRS was entitled to the DDOI's documents to make sure that the IRS has what it needs to make its various cases before the U.S. Tax Court.