Penalty.
We ended the story of microcaptive promoter Celia Clark with the article Former microcaptive promoter sues IRS after being hit with $11 million in Section 6700 penalties (December 11, 2021). As reported in that article, the IRS imposed $11 million in penalties on Clark, Clark paid just over $1.7 million in penalties, after which filed a restitution lawsuit against the IRS within the U.S. District Court for the Southern District of Florida.
We at the moment are coming to the tip of this case because the IRS and Clark have reached an agreement and Clark has paid the settlement amount in full. This information is public knowledge, as could be seen from the Joint communication on the agreementThe Decision on the decision and eventually the Satisfaction of the judgment.
In summary, the order states that the IRS was awarded a judgment on its counterclaim against Clark in the quantity of over $11.6 million. The case was settled with Clark paying $5.2 million, which is slightly lower than half of what the IRS had sought, but still a painful amount. I’d guess, without knowing it, that the quantity of this settlement was probably determined by what Clark could pay moderately than the problems within the case. On the opposite hand, just a number of weeks earlier, one other microcaptive promoter had won a jury trial against the IRS in the same situation, although the promoter in that case was much less well-known than Clark and that promoter had no involvement with microcaptive clients who had lost a case in U.S. Tax Court, see Captive Manager Avoids $6700 Penalties After Jury Trial (April 13, 2024). With a lot at stake, neither side was willing to roll the dice, and this settlement occurred.
This consequence was also likely attributable to Clark doing a little smart risk management for herself. After the Avrahami case was decided in favor of the IRS within the U.S. Tax Court, Clark immediately closed her law firm and captive business and apparently retired. Also, unlike some others involved in microcaptives, I do not recall any allegations that Clark did anything truly egregious, like backdating policy documents. This seemed more like a case of Clark believing she had the proper interpretation of the tax law, when in point of fact she ultimately found that she was just horribly fallacious.
Contrast this with so many microcaptive promoters who continued to operate well after the Avrahami ruling and even after the US Tenth Circuit Court of Appeals’ harsh criticism of microcaptives within the Reserve Mechanical ruling. These promoters knew they were within the fallacious, but they continued because the cash was so good. Good luck to those guys in the event that they even get a halfway decent settlement of their time.
Believe it or not, there are still a number of microcaptive promoters selling this stuff, mostly “cell captives” organized as Series LLCs. I do know this because now and again someone who has been pitched considered one of these deals asks me to examine what someone is attempting to sell them. The promoters simply write off any US Tax Court (and tenth Circuit) losses as the results of substandard schemes, thereby suggesting that their very own sack of crap doesn’t smell so bad. Why these people still have not been shut down is a giant mystery to me.
Clark was on no account the worst promoter of microcaptives, and at the least she saw the signs of the times when the Avrahami report was published. Her chapter within the history of microcaptives is now closed, but rest assured that there are still some interesting chapters to return about other promoters.
