On Monday, August 21, 2017, the Tax Court issued its long-awaited decision in the case of Avrahami v. CIR. Mr. and Mrs. Avrahami are clients of Clark & Gentry, P.L.L.C., and the case has implications for our other CIC clients.
Generally, the decision affects captive insurance companies that participated in risk pools operated by Pan American Reinsurance Group, Inc. during the period 2009-2011. As to these risk pools, the court held, in essence, that Pan American was not a bona fide insurance company, and that, therefore, the policies it was issuing were not insurance, which in turn, in the court’s view, means that the reinsurance by the underlying captive insurance company and those same policies did not distribute risk.
The 105-page opinion discusses many other issues, including the taxpayers’ failure to get prior regulatory approval of loans. The court did not impose penalties except for some tangential matters.
Clark & Gentry clients using Pan American’s risk pool have been audited several times by the IRS and by state agencies with no changes required. In 2012, when the IRS first issued rulings regarding risk pool structures, Clark & Gentry restructured its clients’ risk pools to follow the rulings exactly.