United States v. State of Delaware Department of Insurance, No. 21-3008 (3d Cir. 2023)
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The IRS investigated the companies to determine whether they are liable for penalties for promoting abusive tax shelters. Summonses led to the production of documents in 2014, including email chains involving the Delaware Department of Insurance, relating to the issuance of certificates of authority to the companies' clients and to a meeting with the Department’s Director of Captive and Financial Insurance Products. The IRS issued an administrative summons to the Department for testimony and records relating to filings by and communications with the companies. “Request 1” seeks all e-mails between the Department and the companies related to the Captive Insurance Program. The Department raised confidentiality objections under Delaware Insurance Code section 6920. The IRS declined to abide by section 6920's confidentiality requirements. The Department refuses to produce any response to Request 1.
The government filed a successful petition to enforce the summons. The Sixth Circuit affirmed, rejecting the Department’s argument that, under the McCarran-Ferguson Act (MFA), 15 U.S.C. 1011, Delaware law embodied in section 6920 overrides the IRS’s statutory authority to issue and enforce summonses. While the MFA does protect state insurance laws from intrusive federal action when certain requirements are met, before any such reverse preemption occurs, the conduct at issue (refusal to produce summonsed documents) must constitute the “business of insurance” under the MFA. That threshold requirement was not met here.
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