In Uncategorized on 08/27/2021 at 18:53

It’s a verb meaning attracting and holding the interest of an observer, and CFM Insurance, Inc., Docket No. 10703-19, filed 8/27/21*, certainly does that for IRS. IRS claims CFM is another microcaptive phony that shifts cash but no risk.

Judge Mark V. Holmes has a doubleplay in this order, until IRS drops the chops, thus mooting CFM’s discovery request relating to whether an attorney in Office of Chief Counsel was the real Boss Hoss, even though not the RA’s immediate supervisor. For more, see my blogpost “Call Me Mr. Silt,” 6/16/21.

But the insurance broker who ran the CFM operation and whom I’ll designate as AjG was hit with a third-party subpoena, ranging far and wide over AJG’s role in setting up and running CFM through AJG’s subsidiary Artex. My readers with long memories will remember Artex’s appearance in my blogpost “Discovered Check,” 11/30/15, part of the saga of Caylor Land & Development, Inc., to which Judge Holmes cites at p. 3 of his Order.

Spoiler alert: see my blogpost “My Kind of Insurance Company,” 3/10/21, for the dénoument of the Caylor saga.

AJG says IRS is sailing on a fishing expedition, that compliance with the subpoena is unduly burdensome, and that IRS is only entitled to a lot less than they’re asking for.

Nope, says Judge Holmes.

“The Commissioner’s theory appears to be that CFM didn’t have a ‘substantial purpose (apart from federal income tax effects) for entering into the captive insurance transaction,’ and that it didn’t act in good faith. Comparing the captive insurance that CFM provided to the more traditional commercial insurance that {AJG] provided would likely shed light on any value CFM added to the [insured]’s stores, and therefore its purpose. And examining the [insured]’s stores’ insurance arrangements in the years before CFM’s formation could do the same. This kind of compare-and-contrast analysis is one that we’ve done in every other microcaptive-insurance case we’ve had. Because part of the test for finding an arrangement to be ‘insurance’ is ‘whether an arrangement looks like commonly accepted notions of insurance,’ Caylor, slip op. at 10, a comparison of [insured]’s insurance purchases from AJG slightly before and during the years at issue is therefore relevant, and we think that the Commissioner’s first and second requests for information are reasonably tailored to discover them.

“The Commissioner’s third request seeks communications between AJG and [insured]’s, Mr. P, CFM, and JI (CFO of [insured]) between August 26 and the date the subpoena was received (i.e., a few days to a few weeks later). This is a request aimed at getting information relating to this phase of the litigation. It may be aimed at impeachment evidence or evidence of preparation of a response to the subpoena. It’s not overly burdensome, and AJG may of course respond with a privilege log (as the subpoena states) if it or CFM wants to invoke an exemption to discovery.” Order, at p. 4. (Names and citations omitted, but Judge Holmes cites to all the usual suspects I’ve blogged).

Prospect of an appeal by AJG? They’ve got a heavy-duty white shoe firm representing them. Judge Holmes, by calling their counsel “Mr.,” rather than “Esq.,” you may have provoked them.

*CFM Insurance 10703-19 8 27 21


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