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PROCEDURE & ADMINISTRATION

barred by the Anti-Injunction Act District court decision and comment. The district court took
and dismissed the case for lack of Now able to reach the merits of the into consideration a recent Sixth Circuit
jurisdiction.3 A divided Sixth Circuit case, the district court for the Eastern opinion not involving microcaptives,
affirmed the district court’s decision.4 District of Tennessee issued a March Mann Construction, Inc.,7 handed down
2022 opinion in favor of CIC Services. just 2½ weeks earlier. In Mann, the
Supreme Court holding The court vacated Notice 2016-66 Sixth Circuit held that the lack of a
CIC Services appealed the case to the because the IRS had not followed the notice-and-comment period as required
U.S. Supreme Court.5 In May 2021, the APA’s notice-and-comment procedures in the APA invalidated a similar notice
Court unanimously reversed the Sixth in promulgating the notice and the in which the IRS designated certain
Circuit decision. It held that the Anti- notice was arbitrary and capricious cash value life insurance trusts as
Injunction Act did not prevent CIC under the APA. This outcome is a major reportable transactions.
Services from filing suit to invalidate blow to the IRS and its ability to require Because Tennessee is part of the
Notice 2016-66. The Court offered reporting on Form 8886, Reportable Sixth Circuit, the district court found
several reasons for its holding, including Transaction Disclosure Statement, for Sec. that it was bound by the Sixth Circuit’s
that CIC Services should not have to 831(b) microcaptives. analysis in Mann, which applied equally
intentionally violate the law — risk- to the arguments advanced regarding
ing criminal liability and ruinous civil Notice-and-comment Notice 2016-66. As the Sixth Circuit
penalties — in order to secure its day procedures; Mann Construction had held with respect to the notice
in Court. The Supreme Court decision, The IRS argued that it was exempted in Mann, the court held that the
which was discussed in the August 2021 from complying with the APA’s IRS was not exempt from the APA
issue of The Tax Adviser,6 meant that notice-and-comment procedures or, in notice-and-comment procedures and
CIC Services could move forward with the alternative, that the notice was not Notice 2016-66 was a legislative rule
its lawsuit. a legislative rule that required notice subject to those procedures.

3. CIC Services, LLC, No. 3:17-cv-110 (E.D. Tenn. 11/2/17). 6. Beavers, “Suit Challenging Information Reporting Requirements Can Go
4. CIC Services, LLC, 925 F.3d 247 (6th Cir. 2019). Forward,” 52 The Tax Adviser 534 (August 2021).
5. CIC Services, LLC, 141 S. Ct. 1582 (2021). 7. Mann Construction, Inc., 27 F.4th 1138 (6th Cir. 2022).

EXECUTIVE SUMMARY agency’s issuance of the notice continue to attempt to enforce
was arbitrary and capricious. the notice’s requirements for
• As part of its effort to curb abuses microcaptive insurance arrange-
involving certain insurance • In coming to its holding in CIC ments engaged in by taxpayers
structures, the IRS issued Notice Services, the district court fol- in other circuits. The penalties for
2016-66, designating some lowed precedent set by the Sixth noncompliance with the disclo-
microcaptive insurance arrange- Circuit in Mann Construction, Inc., sure requirements in the notice
ments as transactions of interest 27 F.4th 1138 (6th Cir. 2022), in can be substantial.
that are reportable on Form 8886, which the Sixth Circuit held that a
Reportable Transaction Disclo- similar notice involving cash value • In light of its loss in CIC Services,
sure Statement. life insurance trusts was invalid the next steps for the IRS in its
because the IRS did not follow fight against abusive microcap-
• In CIC Services, LLC, No. 3:17- the APA notice-and-comment tive insurance arrangements
cv-110 (E.D. Tenn. 3/21/22), a procedures. might include issuing a new
federal district court in Tennessee notice to correct the deficiencies
recently declared Notice 2016-66 • As of this writing, it is unclear how the court identified in Notice
invalid because the IRS did not the IRS will respond to the CIC 2016-66 or promulgating regula-
follow the notice-and-comment Services decision. Although the tions to address unsettled issues
procedures of the Administra- enforcement of Notice 2016-66 is involving microcaptive insurance
tive Procedure Act (APA) in likely foreclosed in states within arrangements.
promulgating the notice and the the Sixth Circuit, the IRS may

20 September 2022 The Tax Adviser