Sunday, April 21, 2024

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Delaware had no choice, but to fight IRS summons – Steve Kinion

Delaware’s former captive regulator Steve Kinion has defended Insurance Commissioner Trinidad Navarro and the Delaware Department of Insurance’s legal battle with the Internal Revenue Service over access to documents in an 831(b) investigation.

Captive Intelligence reported in November that the Supreme Court had declined to hear the DDOI’s appeal against the Third Circuit’s decision to let the IRS summons stand, seemingly bringing the six year dispute to an end.



The DDOI had appealed to the Supreme Court in July, arguing the courts “error” raised “critical questions of federalism that require Supreme Court intervention to settle the circuit split caused by the Third Circuit Court of Appeals’ interpretation of the McCarran-Ferguson Act”.

Section 6920 of the Delaware Insurance Code was at the heart of the dispute, as it prevents the Insurance Commissioner from releasing certain information provided by regulated insurance companies to the Department during the licensing and examination process.

Speaking in a personal capacity during an interview on GCP #97, Kinion said Commissioner Navarro had been left with little choice, but to follow state laws.

“This left the Delaware Department of Insurance facing either complying with the summons or violating section 6920. Now the insurance commissioner in Delaware has to abide by the laws that are directed to him by the General Assembly,” Kinion explained.

“And in this case, the Delaware General Assembly enacted a law mandating the confidentiality of these captive insurance documents.

“I think it’s very clear that Insurance Commissioner Trinidad Navarro has no interest in supporting or defending or somehow helping abusive tax schemes. I’ve known Insurance Commissioner Navarro for years and I can guarantee you he has no interest in that whatsoever.

“However, he is bound to comply with Delaware laws. And as a result, he was forced to comply with Section 6920. Well, when he informed the IRS, or his staff informed the IRS, of his decision and his mandated compliance, the IRS initiated a court action in federal court to force compliance.”

Kinion, who today is Oklahoma’s captive insurance director, said the implications from this case could be limited, since the Third Circuit only has three states – Delaware, New Jersey and Pennsylvania – plus the US Virgin Islands within its jurisdiction.

He also said that there is a limited number of captive managers under promoter audit, so this specific case may not be replicated a great deal.

Kinion did, however, issue a caution should the precedent spread.

“State insurance departments maintain many records, whether they’re captive insurance company records or commercial insurance company records, which by law are treated as confidential and the state insurance department are mandated to treat them as such,” he explained.

“If the Third Circuit precedent, which it is now, begins to spread to other circuits, that could create an instance where there may not be a promoter audit in the future.

“It could be that the IRS is auditing an insurance company, a large insurance company, and  it needs or wants some of the confidential filings presented to a state insurance regulator. So, could there be conflict in the future on this point? Certainly, I think it’s possible.”

You can listen to the full interview with Steve Kinion on GCP #97, by visiting the episode page here, or by searching for the Global Captive Podcast on any podcast app or platform.