How Captive Insurers Can Raise A "Bad Faith" Defense To The IRS's Document Discovery

• Published date: 02 November 2022
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Disclosure & Electronic Discovery & Privilege, Trials & Appeals & Compensation
• Law Firm: Womble Bond Dickinson
• Author: Mr Jonathan Reich

If you are running a business or engaging in transactions that the IRS doesn't like - even if they are legal - then the IRS may take steps to investigate you or the business. And the IRS has included various types of captive insurance arrangements on its annual "Dirty Dozen" list of potentially abusive transactions since, at least, 2015.

One of the first things the IRS may do is issue Information Document Requests ("IDR") for various documents and business records regarding the captive insurance arrangement; such as tax returns and corporate governance documents. The IRS may then issue a summons to the business or its principals, seeking books and records related to tax liability, documents related to corporate officers and directors, documents related to the risks covered by commercial insurance versus captive insurance...