Avrahami Tax Court Case Misinformation

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The recent Tax Court case of Avrahami has been commented on by several sources who are not fully familiar with the case record and not familiar with the firm of Clark & Gentry, P.L.L.C., referred to often in the case as a legal advisor to the Avrahamis.

The terrorism risk insurance needs of small businesses, at the heart of the risk pool discussed in Avrahami, were and are supported by numerous U.S. government reports.

Much has been made in the captive insurance press of the recent decision of Avrahami v. CIR, 149 T.C. No. 7 (2017), the first Tax Court case to consider a “microcaptive.” This case involved a client of Clark & Gentry, P.L.L.C., and several comments have been written by Clark & Gentry competitors about mistakes made by Clark & Gentry, and how the commentator would never make such mistakes. These commentaries should be read as what they clearly are – marketing pieces. Many of them contain misstatements about the case. Here is some information we suggest be considered by anyone thinking about forming, closing or switching management for a “microcaptive.”

  • Clark & Gentry has been in the business of advising and supervising microcaptives since 2002. Clark & Gentry has had many captive clients who were reviewed and approved (with no change) by the IRS and state agencies. These include several involving Pan-American Reinsurance Company, Ltd., the risk pool focused on in Avrahami.
  • Clark & Gentry has always had a particular interest in medical captive insurance companies. That focus has now expanded to healthcare insurance and workers’ compensation insurance. These types of insurance were not involved in Avrahami.
  • The terrorism risk insurance needs of small businesses, at the heart of the risk pool discussed in Avrahami, were and are supported by numerous U.S. government reports. Many such reports emphasize the use of captive insurance in addressing deficiencies in the commercial marketplace.
  • Avrahami discussed only risk pools utilized by clients of Clark & Gentry in 2009 – 2010. Clark & Gentry clients did well in risk pool audits for those years; however, beginning in 2012, Clark & Gentry began recommending risk distribution pools specifically in compliance with IRS rulings issued that year. The Avrahami decision has no relevance for these redesigned pools.
  • Since 2011 Clark & Gentry has increased its focus on healthcare insurance, workers’ compensation insurance and professional liability insurance. We welcome inquiries from any business or advisor interested in more efficient coverage in any of these areas, within microcaptives or other self-insurance arrangements. A comprehensive evaluation of risk management will be made for potential clients.

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Celia R. Clark, Esq.
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