I needn’t spend the same time as Judge Albert G. (“Scholar Al”) Lauber on Royalty Management Insurance Company, Ltd., T. C. Memo. 2024-87, filed 9/16/24. As Judge Scholar Al puts it, “To date this Court has decided seven cases involving ‘microcaptive insurance’ arrangements. All of these cases were decided in favor of the Commissioner. Petitioners fare no better here.” T. C. Memo. 2024-87, at p. 2. (Footnote omitted). The footnote enumerates the cases, all or almost all of which I’ve blogged.

Royalty was the Sub S of John B. Sheperd, an OK non-landman. A landman is one who signs up mineral leases from owners of subsurface goodies and sells the leases to E&Ps (Explorers & Producers), who drill, baby, drill to extract said goodies.

John B. claims his risk is defective determinations of who own what, for which he can’t get insurance. But he hires a local searcher who has a 95.5% success rate in determining who owns ad inferos, if not ad coelum, as we used to say on The Hill Far Above. And apparently they don’t know about title insurance in OK; seems like they do have such a thing, although I cannot so opine, as I am not admitted to practice in OK.

And risk of spills and damages arising from drilling falls on the drillers, not on John B. And John B. had no insurance until he met up with an unlicensed vendor of microcaptivity, whose trial testimony was a wee bit less than perfect.

IRS’ expert calls this set-up “a ‘savings account rather than an insurance arrangement.’” T. C. Memo. 2024-87, at p. 33. In short, a cash-stash.

Judge Scholar Al marches through factors and finds at the end no insurance.

“Apart from the labels attached to the entities and documents discussed above, these cases are bereft of evidence pointing to the existence of true ‘insurance.’ The entities in question either did not exist during [year at issue] or were not organized or regulated as insurance companies. Sheperd Royalty achieved no transfer of risk, and RMIC, the putative reinsurer, accomplished no meaningful distribution of risk. And for six distinct reasons, the arrangements at issue did not remotely resemble insurance in the commonly accepted sense.” T. C. Memo. 2024-87, at p. 49.