The Fifth Circuit's affirmation of the Tax Court's decision in Swift v. Commissioner represents a watershed moment in captive insurance jurisprudence, establishing new precedents that extend far beyond the micro-captive arrangements at issue. This decision not only continues the IRS's perfect litigation record against questionable captive structures but also introduces significant analytical shifts that will reshape how courts evaluate all captive insurance arrangements for federal income tax purposes.
The Swift decision delivers the IRS its ninth consecutive victory in micro-captive litigation, affirming the Tax Court's comprehensive rejection of Dr. Bernard Swift's $5.98 million in premium deductions claimed from 2012-2015. While the outcome aligns with recent precedent, the court's analytical approach introduces several notable deviations from prior Tax Court methodology that signal a fundamental evolution in judicial thinking about captive insurance arrangements.
The Fifth Circuit's treatment of three critical areas represents significant departures from established practice: first, the court's implicit acceptance of the Harper Group 30% risk distribution threshold while simultaneously requiring substantive compliance beyond mechanical achievement of that percentage; second, the establishment of new standards for IRC Section 6751(b) supervisory approval timing that favor IRS enforcement flexibility; and third, the categorical rejection of promoter advice as a basis for reasonable cause defenses, creating unprecedented barriers to penalty relief.
Download the full report for a comprehensive 18 page analysis highlighting the key details and implications of this case.
SUBMIT A RISK