Opinion
3101-20 3102-20 3103-20
09-22-2021
Pauline W. Liu, et al., Petitioners v. Commissioner of Internal Revenue, Respondent
ORDER
Joseph H. Gale Judge
The primary issue in these cases is the validity for Federal tax purposes of a purported captive insurance arrangement involving petitioners Stephen K. and Pauline W. Liu and petitioner Lifelink Insurance Company, Inc. The record suggests that one of the law firms representing petitioners--namely, Moore, Ingram, Johnson & Steele, LLP (MIJS)--may have been directly or indirectly involved in planning or promoting the captive insurance arrangement at issue, operating one or more entities connected to it, or both. The Court is thus concerned that certain of petitioners' counsel may have a conflict of interest in these cases and accordingly will direct such counsel to file a sworn statement as set forth below.
See, e.g., Avrahami v. Commissioner, 149 T.C. 144 (2017) (holding that an arrangement involving a captive insurance company did not constitute "insurance" for Federal income tax purposes because it did not distribute risk or meet commonly accepted notions of insurance); see also Caylor Land & Development, Inc. v. Commissioner, T.C. Memo. 2021-30 (same); Syzygy Ins. Co. v. Commissioner, T.C. Memo. 2019-34 (same); Reserve Mech. Corp. v. Commissioner, T.C. Memo. 2018-86 (same); Notice 2016-66, 2016-47 I.R.B. 745 (Nov. 21, 2016).
Rule 24(g)(1) provides in part: "If any counsel of record * * * was involved in planning or promoting a transaction or operating an entity that is connected to any issue in a case, * * * then that counsel must either secure the client's informed written consent; withdraw from the case; or take whatever steps are necessary to obviate a conflict of interest or other violation of the ABA Model Rules of Professional Conduct." See also Rules 1.7 and 1.8, ABA Model Rules of Professional Conduct.
Rule references are to the Tax Court Rules of Practice and Procedure.
The record indicates that MIJS wholly owns the entity MIJS Captive Management, LLC (MIJS Captive), which in turn wholly owns the entity Patriotic RE Insurance Company, Inc. (Patriotic RE). The record also indicates that both MIJS Captive and Patriotic RE were connected to the primary issue in these cases; that is, both were involved in the purported captive insurance arrangement at issue. Moreover, in certain filings with the Court, MIJS Captive and Patriotic RE have both made broad, general assertions of attorney-client privilege, raising questions as to the degree of MIJS's involvement in the planning or promoting of the aforementioned purported captive insurance arrangement.
In our view, MIJS's direct and indirect ownership of MIJS Captive and Patriotic RE, respectively, and possible involvement in the planning or promoting of the purported captive insurance arrangement at issue in these cases, including as it appears, the provision of legal advice and opinions to MIJS Captive and Patriotic RE, implicate Rule 24(g)(1). See, e.g., Para Technologies Trust v. Commissioner, T.C. Memo. 1992-575 (disqualifying counsel from representing taxpayers where he wrote opinion letters for a tax-shelter promoter upon which the taxpayers relied in structuring certain transactions for the years at issue and such counsel's personal interests presented a potential conflict with those of the taxpayers).
Pursuant to Rule 24(g)(1), "[t]he Court may inquire into the circumstances of counsel's employment in order to deter * * * violations" of the foregoing Rule or the ABA Model Rules of Professional Conduct. Under Rule 201(b), "[t]he Court may require any practitioner before it to furnish a statement, under oath, of the terms and circumstances of his or her employment in any case." In view of the foregoing, and in an effort to identify and resolve any potential conflicts of interest in these cases as soon as possible, the Court will direct Jeffrey A. Daxe and Kenneth D. Hall of MIJS to furnish a sworn statement as set forth below.
Upon due consideration and for cause, it is
ORDERED that, on or before October 12, 2021, Jeffrey A. Daxe and Kenneth D. Hall shall each file a statement, under oath, addressing the following matters: (1) whether he was involved, directly or indirectly, in the planning or promoting of the purported captive insurance arrangement at issue in these cases, including any involvement in the provision of legal advice or opinions by MIJS to MIJS Captive or Patriotic RE regarding such arrangement, such as opinion letters upon which MIJS Captive, Patriotic RE, or petitioners may have relied in planning or promoting such arrangement; and (2) the extent, if any, to which he was involved, directly or indirectly, in the operations of MIJS Captive or Patriotic RE. It is further
ORDERED that, if Messrs. Daxe or Hall were so involved in the matters set forth immediately above, then, on or before October 12, 2021, he shall either:
(1) secure petitioners' informed written consent, if he has not already done so;
(2) withdraw from this case; or
(3) take whatever other steps are necessary to obviate any conflict of interest or other violation of the ABA Model Rules of Professional Conduct. If Messrs. Daxe or Hall obtain (or have already obtained) petitioners' informed written consent, then they shall attach such to the statement filed with the Court. It is further
ORDERED that these cases are hereby stricken from the special hearing session of the Court scheduled to commence at 2:00 p.m. (EDT) on Wednesday, October 6, 2021. It is further
ORDERED that respondent shall notify any third party, including the counsel listed below, that participation in the Court's remote proceedings scheduled for October 6, 2021, is no longer necessary. It is further
ORDERED that the (1) Motion to Quash or Modify Subpoena by Non-Party MIJS Captive Management, LLC, filed February 10, 2021; (2) Motion to Quash or Modify Subpoena by Non-Party Patriotic Re Insurance Company, Inc., filed February 10, 2021; and (3) Motion to Quash or Modify Subpoena by Non-Party Aprio, LLP, filed March 31, 2021, as supplemented, are re-calendared for hearing at the Court's December 8, 2021, Washington, D.C., special hearing session to be conducted remotely at a time and date certain of 2:00 p.m. (EST) on Wednesday, December 8, 2021. Judge Joseph H. Gale will preside at the aforementioned hearing. It is further
ORDERED that the Clerk of the Court shall serve on the parties a Notice of Remote Proceeding that shall contain comprehensive instructions on how to participate in the above-referenced remote proceeding. It is further
ORDERED that, in addition to regular service, the Clerk of the Court shall serve a copy of this Order upon the following persons:
Alisha Dickie Moore Ingram Johnson & Steele, LLP
326 Roswell Street, Suite 100 Marietta, GA 30060
Johannes S. Kingma Copeland, Stair, Kingma & Lovell One Ninety One Peachtree Tower 191 Peachtree Street NE, Suite 3600 Atlanta, Georgia 30303
John C. deMoulpied Copeland, Stair, Kingma & Lovell One Ninety One Peachtree Tower 191 Peachtree Street NE, Suite 3600 Atlanta, Georgia 30303
This Order constitutes official notice of its contents to the parties.