SRA 831(b) Admin & Drake File Lawsuit Against IRS Over Abusive Regulatory Overreach

EAGLE, Idaho, June 4, 2025 /PRNewswire/ -- SRA 831(b) Admin, along with Drake Insurance Co. and Drake Plastics Ltd. Co., have filed suit against the Internal Revenue Service (IRS), taking legal action to defend small businesses, restore regulatory fairness, and challenge what the company describes as a multi-year pattern of regulatory harassment and overreach stretching back over a decade targeting the 831(b) captive insurance industry.

"When a government agency exercises its power without accountability or clarity, businesses have not only the right but the responsibility to push back," said Dustin Carlson, President of SRA 831(b) Admin. "This lawsuit isn't just about our company—it's about standing up for the thousands of business owners who deserve fairness, transparency, and the ability to manage risk without fear of regulatory overreach."

"As a small manufacturing business, our focus is on building high-quality products, creating good jobs, and contributing to the real economy," said Steven Quance, President of Drake Plastics. "What we don't need is overreaching regulation that penalizes legitimate risk management and undermines our ability to protect our employees, customers, and suppliers—while continuing to grow and contribute more in legitimate tax revenue."

The lawsuit, filed in response to the IRS's final regulations published on January 10, 2025, argues that the agency's treatment of 831(b) plans, particularly its blanket classification of such arrangements as "transactions of interest" or "listed transactions", exceeds its authority. SRA asserts that these regulations have the effect of criminalizing legitimate insurance structures used by thousands of compliant small businesses.

The company's legal action is rooted in a documented history of burdensome audits, unanswered requests for guidance, and a pattern of inconsistent and punitive oversight from the IRS. SRA cites three specific examples as emblematic of this broader abuse:

I. A Promoter Audit That Led Nowhere
In 2022, the IRS initiated a promoter audit under IRC § 6700, demanding years of records, including every insurance policy, invoice, agreement, marketing piece, and client communication in SRA's history. The company spent more than $200,000 on legal and compliance costs and delivered over 2,500 file boxes worth of digital records. Two years later, in July 2024, the IRS abruptly dropped the audit without comment, conclusion, or guidance, reserving the right to return at any time.

II. A Private Letter Ruling That Took Five Years and Yielded Nothing
In 2019, SRA and its advisors submitted a Private Letter Ruling request to clarify a specific client transaction. Despite consistent engagement and multiple data submissions over a five-year period, the IRS ultimately declined to rule, citing "pending guidance" on risk distribution; guidance that has not come. The process cost SRA over $50,000 and left a legitimate, good-faith request in limbo.

III. Eight Years of Compliance Met with Silence
Following IRS Notice 2016-66, SRA has filed thousands of Form 8886 disclosures on behalf of over 1,000 insureds and 2,000 participants, every year since 2017. These filings are not permitted electronically, forcing manual submissions to both the IRS and its Office of Tax Shelter Analysis. Despite this extraordinary transparency, not one of SRA's clients has been audited due to these filings, nor has the IRS provided any feedback on the company's practices.

The January 2025 final regulations, SRA argues, codify this pattern of abuse by reclassifying nearly all 831(b) activity as inherently suspect, regardless of substance, structure, or compliance history.

"These regulations don't differentiate between honest companies protecting themselves from real-world risks and bad actors looking for tax avoidance schemes," Carlson said. "The result is a chilling effect on responsible risk management at a time when commercial insurance markets are in crisis."

SRA notes that on the very day these final rules were issued, it processed multiple claims from clients affected by wildfires in the Los Angeles area—businesses using 831(b) captives to protect against the exact kinds of disruptions the commercial market increasingly refuses to cover.

The lawsuit seeks to vacate the IRS's final rule and halt the agency's enforcement of the new reporting regime. SRA argues that the rulemaking process was flawed, that the new classifications violate the Administrative Procedure Act, and that the IRS is targeting legal business arrangements with blanket suspicion instead of clear guidance.

About SRA 831(b) Admin

SRA 831(b) Admin, established in 2009, is a leading provider of 831(b) plan administration, specializing in innovative risk management solutions for small- to medium-sized businesses. By leveraging the 831(b) tax code, SRA empowers businesses to mitigate underinsured and uninsured risks through tax-deferred contributions. SRA ensures compliance, education, and seamless plan implementation, offering tools once reserved for Fortune 500 companies. Trusted by over 1,500 businesses, SRA helps clients navigate risks such as high deductibles, business interruptions, and gaps in liability coverages, reinforcing its mission to help businesses "weather the storm" with resilience and efficiency. For more information, visit 831b.com.

About Drake Plastics Ltd. Co.

Founded in 1996, Drake Plastics Ltd. Co. began by extruding glass-reinforced Torlon® 5030 PAI machinable shapes to support the Javelin Missile Program. Headquartered in Cypress, Texas, the company has since grown into a global leader in the production of machinable stock shapes, injection molded parts, and precision-machined components made from ultra-high-performance polymers.

With a robust, U.S.-based supply chain, Drake proudly serves both domestic manufacturers and international markets across semiconductor, medical, aerospace, energy, defense and other industries.

Certified to AS9100D and ISO 9001:2015 standards, Drake embraces lean manufacturing principles throughout its operations to deliver superior quality, efficiency, and responsiveness.

For more information, visit www.drakeplastics.com

Drake Insurance Company provides key coverages for Drake Plastics Ltd. Co. along with over 30 other Drake affiliated entities.

For additional information or to schedule an interview with company leadership or legal counsel, please contact:

Media Contact:
Demaree Donaghu
[email protected] 
712.389.1109

Bre Cohen
[email protected]
208.424.2249

SOURCE SRA 831(b) Admin