Reserve Files Opening Brief with Tenth Circuit Court of Appeals

February 28, 2020 (Houston, TX) – Capstone announced today that The Feldman Law Firm LLP and Foley Gardere have filed the opening brief with the Tenth Circuit Court of Appeals on behalf of Appellant Reserve Mechanical Corp. Reserve is a client of Capstone.

The Appeals brief challenges the U.S. Tax Court’s rulings in the well-publicized Reserve captive insurance case, identifying the specific ways in which the Tax Court erred in its adverse Opinion issued in June 2018.

In its opinion, the Tax Court concluded that Reserve’s transactions did not constitute insurance for federal income tax purposes. The Tax Court erroneously held that Reserve’s insurance arrangements did not meet two of the four necessary insurance criteria, concluding that Reserve failed to satisfy adequate risk distribution and that Reserve’s arrangement with its affiliated company (Peak Mechanical & Components, Inc.) was not “insurance in the commonly accepted sense.”

Reserve’s opening brief explains that Reserve satisfied the risk distribution test by receiving more than 30% of its gross premiums from reinsuring pooled and blended risks of more than 150 insureds under more than 500 direct-written policies, issued by PoolRe Insurance Corp.

The brief states: “Reserve’s direct-written policies provided real insurance: when Peak suffered a covered loss and made a claim, Reserve paid. Reserve’s risk distributing arrangements imposed real contractual rights and obligations. If Peak suffered a large covered loss, a substantial portion of the loss over a predetermined amount would be borne by the fifty-plus insurers participating in the risk pool. By the same token, if one of those insurers responded to a large loss, Reserve would also be called upon to pay its proportionate share of the loss.”

Additionally, the Tax Court employed legal reasoning that was contradictory to decades of existing caselaw. As well, the Tax Court went outside the record in making findings that were not supported by the evidence at trial.

The Tenth Circuit’s decision in the Reserve appeal is expected to carry enormous implications for the captive insurance industry.

Capstone has previously released a number of commentaries that further explain the Reserve case which can be found at

The Reserve court filings and the briefing can be found at

Capstone has successfully resolved with no change over TAX_CONTROVERSIES captive tax matters over the last two decades. Now in its CAP_YEARS_NUMBERnd year, Capstone continues to serve clients in the alternative risk planning market in a wide range of industries and throughout the United States.

Please contact The Feldman Law Firm LLP ‘s Logan Gremillion or Stewart Feldman at 1.713.850.0700 or Capstone’s Jeff Carlson at WEB_TEL with any questions.