SRA 831(b) Admin and Drake Challenge IRS Over Harsh Regulations Affecting Small Businesses

SRA 831(b) Admin and Drake Take on the IRS in Landmark Lawsuit

In a significant move against government overreach, SRA 831(b) Admin, alongside Drake Insurance Company and Drake Plastics Ltd. Co., has filed a lawsuit against the Internal Revenue Service (IRS). This legal action aims to confront years of regulatory abuses that the companies argue have unfairly targeted the 831(b) captive insurance sector and, by extension, small businesses using these structures. As Dustin Carlson, President of SRA 831(b) Admin, highlights, this fight goes beyond just their companies; it's about protecting the rights of thousands of business owners seeking fairness and transparency in regulatory practices.

The Core of the Issue

The law suit, initiated on June 4, 2025, is primarily aimed at challenging the IRS's final regulations that were published just months prior, on January 10, 2025. The regulations classify 831(b) plans as “transactions of interest” or “listed transactions,” a designation that SRA argues oversteps the agency’s authority and criminalizes legitimate business operations. These new classifications could have dire consequences for compliant small businesses, stifling their ability to effectively manage risk.

Steven Quance, President of Drake Plastics, emphasized the detrimental impact of overreaching regulations on small manufacturers like his company. He noted that their focus should remain on creating high-quality products and fostering job growth rather than navigating unnecessary and punitive regulatory landscapes that threaten their stability and contributions to the economy.

Documented Patterns of Abuse

At the heart of the lawsuit lies a documented history of burdensome audits and lacking communication from the IRS. Particularly troubling are three specific examples that depict the extent of regulatory harassment:

1. Unresolved Promoter Audit: In 2022, the IRS conducted an exhaustive audit that demanded extensive documentation, costing SRA over $200,000 with no outcomes after the audit was dropped without explanation two years later.
2. Stalled Private Letter Ruling: A request made in 2019 for a Private Letter Ruling regarding a specific client transaction was met with silence for five years, despite the submission of extensive data, ultimately resulting in no resolution and a significant financial cost.
3. Continuous Compliance with No Feedback: Since 2016, SRA has submitted numerous Form 8886 disclosures, yet they have received no feedback or audits in response, raising concerns that the IRS is operating without any accountability.

These experiences illustrate a worrying trend of inconsistent oversight that the company believes is codified in the recent regulations. According to SRA, the IRS is not distinguishing between legitimate business practices and tax avoidance schemes, creating an environment that discourages responsible risk management in an already strained commercial insurance market.

Challenging Regulatory Practices

This lawsuit is not merely a defense of the companies' practices; it embodies a broader plea for accountability within regulatory frameworks that should protect rather than hinder small businesses. The lawsuit seeks to overturn the IRS's latest rules and suspend the enforcement of this new reporting regime, contending that the process leading to these classifications violated the Administrative Procedure Act.

Looking Ahead

As this legal battle begins, SRA 831(b) Admin stands at the forefront of defending small businesses against systemic regulatory abuses. Established in 2009, this organization has positioned itself as a key player in providing risk management solutions that empower small and medium-sized enterprises to navigate their challenges effectively. With over 1,500 businesses relying on their expertise, SRA's commitment to safeguarding their clients' rights is stronger than ever.

In conclusion, the outcome of this lawsuit could set a precedent for how regulatory practices are enforced regarding small businesses in the U.S., potentially restoring a much-needed balance between compliance and fair treatment in the industry. The stakes are high, not just for SRA and Drake, but for the many small business owners who are counting on this legal challenge to advocate for their rights and secure their futures.