Former microcaptive promoter Celia Clark has reached the end of her legal battle with the IRS after being assessed with $11 million in Section 6700 penalties. Clark paid over $1.7 million in penalties and then filed a refund lawsuit against the IRS in the U.S. District Court for the Southern District of Florida. The case has now been settled, with Clark fully paying the settlement, as outlined in the Joint Notice of Settlement, Order Granting Judgment, and Satisfaction of Judgment.
The Order states that the IRS was awarded a judgment on its counterclaim against Clark in the amount of over $11.6 million. The case settled with Clark paying $5.2 million, which is slightly less than half of what the IRS sought but still a significant amount. The settlement was likely driven more by what Clark was able to pay rather than the issues in the case. Another microcaptive promoter had recently won a jury trial against the IRS in a similar situation, but the stakes were too high for either side to risk a trial, leading to the settlement.
Clark exhibited smart risk management by closing her law firm and captive operations immediately after the Avrahami case was decided in favor of the IRS before the U.S. Tax Court. Unlike some other microcaptive promoters, there were no allegations of Clark engaging in egregious actions like backdating policy documents. While Clark believed she was correct in her interpretation of the tax law, she was ultimately determined to be wrong. In contrast, other promoters continued to market and sell microcaptives despite knowing they were in the wrong.
Despite the legal battles and negative outcomes for many microcaptive promoters, there are still some individuals selling these arrangements, mostly in the form of “cell captives” organized as series LLCs. These promoters attempt to downplay the losses experienced in U.S. Tax Court and the 10th Circuit, suggesting that their own programs are of higher quality. It remains a mystery why these promoters have not been shut down by authorities given the legal precedents set against microcaptives.
Clark’s chapter in the story of microcaptives has come to a close, with her finally recognizing the futility of continuing in the industry after the Avrahami decision. While she was not the worst promoter of microcaptives, her experience serves as a cautionary tale for others in the industry who persist despite mounting legal challenges. As the story of microcaptives continues to unfold, it is likely that more interesting chapters involving other promoters will emerge in the future.
