Arthur J. Gallagher & Co. (AJG) is a public insurance and risk management company based in Illinois accused by plaintiffs in a class action lawsuit of providing and promoting illegal captive insurance tax strategies for their clients. The plaintiffs allege this strategy was not real and it was really an abusive tax shelter designed to help them charge huge fees to the clients involved. The clients who were involved with this scheme had to pay management fees and other kinds of costs before the Internal Revenue Service (IRS) caught on and they had to pay penalties. The plaintiffs also allege the companies involved with the strategy knew it would not pass the IRS’ standard, but continued with it for their own purposes. In 2018, the IRS announced they would be cracking down on abusive tax shelters and stated that those among other tax scams in the “Dirty Dozen” list will be targeted.

According to news reports about the class action lawsuit, Arthur and some of its subsidiaries were named as defendants in addition to others deemed “other participants” like CPAs, tax attorneys and financial advisors who directed their clients towards the companies involved with the strategy for referral fees. The clients were reportedly sold that the arrangement was a captive insurance company, but in reality was really a fake tax shelter. Underwriter and actuary firms were also named in the lawsuit as defendants by the plaintiffs alleging they abdicated their roles as neutral third parties evaluating the strategy.

A captive insurance company is an entity formed by the insureds for the sole purpose of insuring the risk of its owners. The owners can also benefit from any profit made through the entity’s profits. Captive insurance companies are a way for people to work outside of the traditional insurance sector and protect their money while they use their own money to achieve their obligations. The commercial insurance industry has a lot of rules and sometimes their standards may be too strict for people that maybe interested in using their capital. Captive insurance companies are an alternative to that industry and while it is easier in some ways, it can offer less protection than traditional insurance companies.

Tax shelters are not inherently a bad thing. It is merely a way for people to pay less taxes. The tax code has a lot of options for taxpayers to use to lower their tax burden. According to the Investopedia, charitable deductions, the mortgage interest rate deduction, the student loan interest deduction, 401K plans, 403b plans, Roth and Roth IRA plans are the most common options people use to reduce their tax burden. However, there is a difference between tax shelters and tax evasion which is illegal and something the government goes after. Tax evasion is what a lot of people and entities get prosecuted for. Certain strategies from individuals and companies can be considered a grey area or outright illegal and if they are caught the taxpayer is liable to pay the penalties.

That is what the plaintiffs in the AJG case are accusing the company, its subsidiaries, and their co-conspirators of concocting for fees and leaving them to deal with the consequences. April 15th is Tax Day and its important to know what are the legal tax shelters to reduce tax liabilities and avoid tax evasion.

About RapidFunds

RapidFunds provides post-settlement funding to plaintiffs’ attorneys with fees in the settled cases against Arthur J. Gallagher & Co. The company also provides case cost funding to plaintiffs’ attorneys for their current and future case expenses like the tax shelter and captive insurance case against Arthur J. Gallagher and Co. and its subsidiaries. Interested plaintiffs’ attorneys can fill out an application on our website or complete the application here. For more information about post-settlement funding, case cost finance, and the funding process call 888-927-9500 or email info@rapidfunds.com.