The Tax Shelter Promoters Among Us – It’s Time To Name Names
By Sean King, JD, CPA, MAcc
We have a couple sayings in the South that accurately describe the current state of the captive insurance industry. One is, “the smeller is the feller”. Another is, “he who smelt it, dealt it”. Both reference the all-too-common human tendency to deflect blame for something seemingly incriminating or embarrassing (passing gas, for instance) by being the first and loudest to accuse others of having done so.
Given that this human tendency is so widespread, it should come as no surprise then that some of the country’s most outspoken critics of 831(b) “promoters” are, or at least not long ago were, by their own definition, tax shelter promoters extraordinaire. I will identify one of them by name here, and I will provide some evidence to support my contention. I may name others in future posts.
But, for now, let’s talk about Jay Adkisson, the guy who literally wrote the book promoting captives. Given the viciousness with which Jay regularly disparages New Wave captive advisors on his website or LinkedIn group (from which I am, not surprisingly, banned), readers might conclude that Jay would never promote 831(b) captives as income tax or estate tax planning tools.
And readers would be very, very wrong.
Take a few minutes to review the slides of this presentation that Jay Adkisson and another lawyer gave to the Association for Advanced Life Underwriting (AALU): https://db.tt/t2rnWV0g.
Seriously, dear reader, please read the slides! Especially the last three-quarters or so of them, including the headings. This presentation is a step-by-step “how-to” guide to doing everything that Jay now publicly lambastes–marketing 831(b)’s as income and estate taxes reduction techniques. (Please ignore the noise you hear in the background right now, it’s just Donald Riggins screaming “say it ain’t so, Jay!”)
But there’s more. Consider this offering memorandum for Northcore Holdings, Inc. discussing a scheme by which numerous 831(b) captives would be formed, at least in part, for the purpose of investing in life insurance and other things sold by the primary promoter: https://db.tt/ZnGrKugP. I know it’s long, but I beg you again, please read the memo! You will be astounded. Yes, there’s tons of CYA disclaimer and disclosure language up front designed to protect these tax shelter promoters from liability, but get a few pages in and the real purpose of this deal becomes clear.
Per slides 8 and 9, this whole arrangement was to be managed by a single captive manager, a company called Trafford. Guess who was an owner and key person in Trafford? Jay Adkisson (see page 9 of the memo). Question: Was Trafford (or its Principals) participating directly or indirectly in the life insurance commission-based revenue that this scheme was so obviously designed to produce?
Given that the organizer of this whole scheme, Mr. Colombik, admits in the memo to having essentially no experience with captives, it’s no surprise that the memorandum says repeatedly that he and his company will rely “extensively on the advice and assistance of” Trafford in implementing and managing the scheme. Presumably, given the prominence of Trafford’s role in the scheme, Trafford also played a role in drafting, or at least approving the use of its and its Principals’s names in, the memorandum itself.
And finally, although not nearly as egregious, consider this newsletter from 2006 by Jay’s law firm, Adkisson and Riser: https://db.tt/0OztDXzY. See specifically pages 5 and 6 which, under the heading PLAN NOW FOR YEAR END TAXES, discusses favorably both 831(b) captive insurance companies and 419 plans. Note that Jay’s description of the many advantages of captives gives only a passing nod to the real insurance purpose of the captive insurance company, focusing instead on how captives can be used to reduce income taxes, protect assets from creditors, and zero out the taxable profits of the related insureds by making the insureds “appear as only a ‘break even’ enterprise on paper, because the profits have been effectively shifted to the captive.”
And, given that Jay so frequently today tries to taint 831(b) promoters by lumping them in with now-discredited 419 plan promoters, the language in this newsletter touting the benefits of 419 plans, and of investing their assets in life insurance(!), is…telling.
If anyone has been a captive insurance company tax shelter promoter, it’s first and foremost Jay Adkisson, and he acted as such for many years. When it comes to promoting captives and their tax advantages, Jay is cock of the walk. His attempts to position himself now as an outsider critic of 831(b) “promoters” are demonstrably disengenuous and cynically self-serving.
Should we throw Jay to the wolves, or the IRS, for his duplicity on these issues? I don’t think so. Much of what is said at the above links is actually defensible under any reasonable interpretation of current tax law, current abusive tactics of the IRS and current hand-wringing by Jay notwithstanding. After all, a tax incentive like 831(b) is supposed to actually incentivize, and even Old Guard blowhards like Jay are understandably not immune to touting those incentives.
Even so, given that Jay and many in the Old Guard sought to take the easy way out by pointing fingers at others, rather than by simply explaining and defending their own often reasonable activities, we hereby demand our pound of flesh, and we shall have it. The days are over when the Old Guard could sit smugly on the sidelines screaming “eeewwww, someone passed gas!”. Everyone will soon know, if they don’t already, that the smeller has indeed been the feller.
PS–If other outspoken critics of New Wave 831(b) “promoters”–critics like Donald Riggins, Hale Stewart, Beckett Cantley, Lance Wallach and others–have even a single principled bone in their bodies, they will now publicly attack their former champion, Jay Adkisson, at least as viciously as they have attacked so many of their New Wave competitors. If they don’t, then that tells the reader everything he need know about the Old Guard’s real motives and agenda in hyping these issues.