Indian tribes and small businesses rely on Congressional intervention.
In September of this year, the Senate Finance Committee held a hearing to consider the nomination of Marjorie Rollinson for the position of General Counsel of the IRS.
During this hearing, several committee members repeatedly emphasized their concerns about the IRS’s enforcement practices and tactics and how the agency enforces our nation’s tax laws.
I was very happy to see this, as IRS enforcement is an issue near and dear to my heart.
I was particularly pleased that Senate Finance Committee member Mike Crapo sent a question to Rollinson detailing IRS enforcement issues, specifically regarding the agency’s treatment of micro-insurance companies.
Microcaptive insurance, sometimes known as an 831(b) captive or small captive, is a form of self-insurance that allows companies to set aside up to $2.65 million annually to protect against future risks.
The types of policies available through micro-captives are almost limitless and often include coverage for risks that cannot be insured through commercial markets. They are a very useful and effective tool for small businesses and offer more flexibility and control than traditional policies.
I believe Congress showed great foresight in 1986 when it created Section 831(b) of the Internal Revenue Code, and again when it was expanded and improved in 2015. For decades, this section of the Internal Revenue Code has been a lifeline for owners of small business anywhere in the country.
Unfortunately, the IRS has taken a negative view of micro-insurance, ensnaring thousands of hard-working small business owners in an audit trail over the past few years. Many of these business owners are in legal limbo because the IRS has been investigating them for years and refusing to take the case to tax court.
As a member of the regulatory structure of the Modoc Nation located in northeastern Oklahoma, I am proud to say that our tribal chief, Chief Robert Burkibill III, publicly spoke about this issue in March of this year. The Modoc Nation is a sovereign, federally recognized Indian tribe and enjoys the right to conduct business operations on its territory. The tribe houses a number of insurance companies, including micro-captives. The housing and supervision of these insurance companies and micro-captives provide vital income for tribal members.
As Chief Burkybile noted in March, the fees these companies pay are extremely beneficial to the tribe. They allow us to offer extended social services to members, such as childcare assistance, scholarships for higher education, quality housing and more.
In the months since he spoke on the issue, the IRS has not revised any part of its excessive campaign against micro-captives. In fact, just a few months later, the agency stepped up its efforts and proposed crushing new regulations that could force most of the industry to shut down.
This is completely inappropriate for the agency to do unilaterally. Congress created the microinsurance framework nearly 40 years ago and has repeatedly reiterated its support in the decades since.
In contrast, the agency appears to suggest that if a small business owner owns or uses a microinsurance company, they are guilty of tax avoidance or tax haven creation. This presumption appears to exist even before the investigation has begun. The presumption of innocence should have force because it is a tool Congress intended for small business owners to use.
I want to again express my gratitude to Senator Crapo for casting his vote on this matter. I also hope that other members of Congress, especially our state’s representative on the House Ways and Means Committee, Congressman Kevin Hearn, will speak out against this outrageous behavior. Members of the Modoc Nation and small businesses across the country rely specifically on him, and Congress by extension, to protect small businesses and tribal sovereignty.
Mark Weitz is an attorney and founder of Weitz Morgan PLLC and currently serves as the Insurance Commissioner for the Modoc Nation in northeastern Oklahoma.