Capstone Associated Services, Ltd. v. United States

IN THE UNITED STATES COURT OF FEDERAL CLAIMS ___________________________________ ) CAPSTONE ASSOCIATED SERVICES, ) LTD., ) ) Plaintiff, ) No. 21-913 ) v. ) Filed: September 25, 2026 ) THE UNITED STATES, ) ) Defendant. ) ___________________________________ ) OPINION AND ORDER Plaintiff Capstone Associated Services, Ltd. (“Capstone”), by and through Capstone Holdings Corp., Tax Matters Partner, contests the Internal Revenue Service’s (“IRS”) Notice of Final Partnership Administrative Adjustment (“FPAA”) dated November 13, 2020, which disallowed $239,773 in insurance premium expense deductions claimed by Capstone for the 2016 tax year and imposed accuracy related penalties amounting to 20 percent of the alleged underpayment. Before the Court is Capstone’s Motion for Summary Judgment. Capstone argues that the undisputed facts establish that the payments constitute insurance premiums, entitling Capstone to judgment as a matter of law. The Government contends that genuine issues of material fact, as well as questions of evidentiary weight and credibility, preclude summary judgment. For the following reasons, the Court DENIES Capstone’s Motion for Summary Judgment. I. BACKGROUND A. Captive Insurance Transactions Generally Businesses generally may deduct insurance premiums from their taxable income as ordinary and necessary business expenses. See I.R.C. § 162(a); Treas. Reg. § 1.162-1(a). Businesses may not, however, deduct money set aside in reserves to pay for a business’s expected losses—i.e., self-insurance. See, e.g., Clougherty Packing Co. v. Comm’r of Internal Revenue, 811 F.2d 1297, 1300 (9th Cir. 1987). Where the insurer and the insured are affiliated entities, often referred to as a “captive insurance” arrangement, id. at 1298 n.1, the concern is that the taxpayer may be effectively engaging in “self-insurance” as opposed to paying insurance premiums, id. at 1300. On the other side of the transaction, the Internal Revenue Code generally taxes insurance companies on their income like other corporations. See I.R.C. §§ 11, 831(a). However, insurance companies (including captive insurers) below a certain size can alternatively elect to exclude a certain amount of premiums received from their taxable income. Id. § 831(b). In 2016, the relevant tax year in this case, the maximum premium limit was $1.2 million. 1 Id. Under § 831(b), these small insurance companies instead pay taxes only on their investment earnings. United States v. Dep’t of Ins., 66 F.4th 114, 118 & n.4 (3d Cir. 2023). While “captive” insurance generally refers to transactions where the insurer and insured are affiliated entities, Avrahami v. Comm’r of Internal Revenue, 149 T.C. 144, 176 (2017), “microcaptive” insurance specifically refers to arrangements where small insurance companies provide coverage to an affiliated entity, or group of related companies, while making an I.R.C. § 831(b) election, see id. at 179 (“Combining these two concepts—captive insurance companies and the section 831(b) tax advantages for small insurance companies—yields the ‘microcaptive.’”). 2 Given the affiliation between the insured and captive insurer and the tax benefits that accrue to both entities, microcaptive insurance arrangements can pose a heightened 1 For taxable years beginning after December 31, 2016, Congress raised the premium limit to $2.2 million and added diversification requirements. See Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, § 333, 129 Stat. 2242, 3106–08 (2015). These changes are irrelevant to the 2016 tax year at issue in this case. 2 Although the instant case involves a microcaptive arrangement, this opinion refers generally to captive and microcaptive insurance and insurers interchangeably. 2 risk of tax abuse. See id. at 179–80 (describing ways in which such arrangements may operate to generate “tax deductions while arguably moving money from one pocket to another”); CIC Servs., LLC v. Internal Revenue Serv., 593 U.S. 209, 213 (2021) (describing microcaptive insurance arrangements’ “potential for tax evasion”). Despite the IRS’s concern for potential abuse, where the microcaptive transaction constitutes real insurance, rather than a loss reserve, the taxpayer is entitled to the deduction Congress elected to provide under the Code. See CIC Servs., 593 U.S. at 213 (noting that “[t]he result is that the money does not get taxed at all,” and “for better or worse, [this] is a congressional choice”). B. Capstone’s Purported Premiums and FinServ and PoolRe’s Purported Insurance Coverage The key issue in this case is whether Capstone properly deducted from its taxable income insurance premium payments it made to FinServ Casualty Corporation (“FinServ”) and PoolRe Insurance Corporation (“PoolRe”). The answer to that question depends on whether those payments constituted “insurance” premiums that entitle Capstone to the tax benefits it claimed. See Pl.’s Mem. of L. in Supp. of Mot. for Summ. J. at 8, ECF No. 181; Def.’s Resp. in Opp’n to Pl.’s Mot. for Summ. J. at 5–6, ECF No. 188. Capstone, at all relevant times, was owned 49.5 percent by Stewart Feldman, 49.5 percent by Mr. Feldman’s wife, Dr. Marla B. Matz, and 1 percent by Capstone Holdings Corp. See Decl. of Stewart A. Feldman ¶ 15, ECF No. 180-3. Capstone Holdings Corp., at all relevant times, was owned 50 percent by Mr. Feldman and 50 percent by Dr. Matz. Id. ¶ 18. In 2016, FinServ, which was domiciled in and regulated by Anguilla, British West Indies, was owned 61 percent by Dr. Matz and 39 percent by a trust of which Dr. Matz was the trustee. Id. ¶¶ 54, 58; Pl.’s Exs. at 276– 3 77, ECF No. 182-3 (FinServ’s register of shareholders); 3 ECF No. 182-4 at 118 (FinServ’s Anguilla insurance license). Thus, Capstone and FinServ were corporate siblings—i.e., they shared a beneficial owner. 4 In 2016, PoolRe was also domiciled in and regulated by Anguilla and was owned by a third party, Stephen Friedman. ECF No. 180-3 ¶ 82 (Feldman Declaration describing lack of common ownership between Capstone and PoolRe); id.¶ 79 (describing PoolRe redomiciling to Anguilla in 2009); ECF No. 182-5 at 16 (PoolRe’s Anguilla insurance license). But other evidence indicates a potential relationship, though not formal ownership, between PoolRe and FinServ as well as PoolRe and Capstone. For example, Mr. Freidman pledged as collateral on a loan from FinServ to Mr. Friedman “[a]ll shares of common stock of PoolRe.” ECF No. 190-5 at 16. And PoolRe’s Conflict of Interest Policy identified PoolRe as “a wholly owned subsidiary of Capstone.” ECF No. 190-1 at 3. Moreover, one of PoolRe’s directors, Robert L. Snyder II, testified at deposition that he provided overlapping and simultaneous consulting services to Capstone during his time as a PoolRe director. Dep. Tr. of Robert Snyder at 11:3–12:25, ECF No. 189-20. Capstone’s Summary of Third-Party Reinsurance Programs similarly described PoolRe as a “Capstone- 3 Each party filed an appendix of exhibits in support of their respective briefs. Specifically, Capstone filed a Statement of Undisputed Material Facts and Appendix of Exhibits. See ECF Nos. 180-2, 182–84. After the Court granted Plaintiff’s Motion for Leave to File Exhibits Out of Time and to File Replacement Statement of Facts in Support of its Motion for Summary Judgment, see ECF No. 185, Capstone filed a replacement version of its Statement of Undisputed Material Facts. See ECF No. 187-1. The Government filed a Response in Opposition to Plaintiff’s Statement of Undisputed Facts and Exhibit Index. See ECF Nos. 189–99. After the Court granted the Government’s Motion to File Corrected Exhibits, see ECF No. 200, the Government filed corrected versions of Exhibits 52, 160, and 166–67. See ECF Nos. 201–03. The Court refers to each party’s exhibits by their respective ECF numbers and associated pagination rather than the bates-labeled page numbers. 4 In 2017, FinServ was merged into A.M.Y. Property & Casualty Insurance Corporation. ECF No. 180-3 ¶ 127. 4 administered Risk Pool” that “[l]imit[s] [its] pool participants to Capstone-administered companies.” ECF No. 190-3 at 2. Capstone contends that, in 2016, it paid $147,595 in direct premiums to FinServ for 10 insurance policies. ECF No. 180-3 ¶ 96 (Feldman Declaration describing the purported premiums and policies); see, e.g., ECF No. 184-3 at 29 (commercial crime policy). For nine of these policies, FinServ was liable for losses below the attachment point (i.e., “primary coverage”), which was 35 percent of the total direct written premiums and pooled premiums received by FinServ for the year. ECF No. 180-3 ¶¶ 104, 107 (Feldman Declaration describing FinServ’s liability for primary coverage below the attachment point, which was 35 percent of FinServ’s premiums); see also ECF No. 184-3 at 62 (Joint Underwriting Stop Loss Endorsement for the nine policies describing the attachment threshold as 35 percent of the Subject Premiums). Losses exceeding the primary coverage (i.e., “excess coverage” or “stop-loss coverage”) were split between FinServ, which covered 20 percent, and PoolRe, which covered 80 percent. ECF No. 180-3 ¶¶ 105, 107–08, 115 (Feldman Declaration describing the stop-loss coverage PoolRe provided to Capstone and FinServ); see also ECF No. 184-3 at 62 (Joint Underwriting Stop Loss Endorsement for the nine policies describing PoolRe’s coverage for 80 percent of losses exceeding the attachment threshold subject to a ceiling of 160 percent of the Subject Premiums). PoolRe then ceded its 80 percent share to a quota-share risk pool of 79 participating insurance companies, including FinServ. ECF No. 180-3 ¶¶ 115–17 (Feldman Declaration describing the quota-share risk pool); ECF No. 183-1 at 13–14 (2016 Quota Share Reinsurance Policy’s schedule of reinsurers and respective quota shares). Capstone also claims that it paid $92,178 in insurance premiums directly to PoolRe for stop-loss coverage on these nine policies. ECF No. 180-3 ¶ 139 5 (Feldman Declaration describing Capstone’s payment of purported premiums for PoolRe’s excess coverage). FinServ maintained three lines of insurance in 2016, receiving: (1) direct written premiums from policies issued to 10 of its affiliated insureds (including Capstone); (2) payments from PoolRe for risk that PoolRe ceded to FinServ through FinServ’s participation in PoolRe’s quota- share risk pool; and (3) reinsurance premiums for its participation in vehicle-service contracts ceded from Wesco Insurance Company (“Wesco”) through Aria (SAC), Ltd. (“Aria”) and PoolRe. Id. ¶ 94 (Feldman Declaration describing FinServ’s 2016 insurance policies and premiums); ECF No. 182-4 at 198 (FinServ’s 2016 income statement indicating FinServ’s revenues consisted of direct written premiums, pooled reinsurance, other reinsurance programs, and investment income). In 2016, PoolRe’s business consisted of issuing stop-loss insurance policies, administering a quota-share insurance program, and other insurance activities such as the Wesco reinsurance contracts. ECF No. 180-3 ¶¶ 129–31 (Feldman Declaration describing PoolRe’s 2016 premiums); ECF No. 184-10 at 502 (PoolRe’s 2016 income statement indicating PoolRe’s revenues consisted of direct written premiums, reinsurance, insurance services income, and investment income). Through the stop-loss policies, PoolRe insured other insurers for losses exceeding their primary coverage. ECF No. 180-3 ¶ 130 (Feldman Declaration describing PoolRe’s stop-loss coverage); ECF No. 184-3 at 62 (Joint Underwriting Stop Loss Endorsement between FinServ and PoolRe describing PoolRe’s stop-loss coverage). PoolRe then ceded this liability to the other insurers participating in the quota-share risk pool. ECF No. 180-3 ¶¶ 110, 115–17, 130 (Feldman Declaration describing PoolRe’s quota-share risk pool); ECF No. 184-3 at 64 (Joint Underwriting Stop Loss Endorsement explaining that PoolRe, as the Stop Loss Insurer, “redistributed” its 80 percent of liability for the excess coverage “among the various participating captive reinsurers”). 6 Each insurer assumed a quota-share percentage of the ceded total risk of the combined pool. ECF No. 183-1 at 13–14 (2016 Quota Share Reinsurance Policy’s schedule of reinsurers and respective quota shares). One of the insurers in the quota-share risk pool was FinServ. See id. at 13 (2016 Quota Share Reinsurance Policy’s schedule listing FinServ’s quota share as 1.3484 percent). The Feldman Law Firm LLP (“Feldman Law Firm”) acted as the “Servicing Agent” of Capstone and other entities with “overlapping ownership” (the “Operating Entities”) under a Shared Services Agreement (“SSA”) dated November 2, 1998. ECF No. 184-9 at 44. Mr. Feldman is the managing partner of Feldman Law Firm, which is directly or indirectly owned by Mr. Feldman and Dr. Matz. 5 See id. at 52 (SSA signed by Mr. Feldman as “Managing Partner” of Feldman Law Firm); ECF No. 180-3 ¶¶ 1, 99 (Feldman Declaration indicating that, since the early 1990s, he has been a partner of Feldman Law Firm, which is a part of Feldman / Matz Interests, LLP, and owned directly or indirectly by Feldman and Matz). The SSA explained that the Operating Entities “wish[ed] to minimize their respective staffing and to better the quality of [their] services by contracting with Servicing Agent for the performance of administrative duties for the operation of each Operating Entity.” ECF No. 184-9 at 44 see also Decl. of Paul K. Franks ¶¶ 15– 21, ECF No. 180-1 (Feldman Law Firm’s controller explaining the operation of the SSA). Pursuant to the SSA, Feldman Law Firm was authorized to issue payments on behalf of Capstone in connection with the administrative services provided, like the premium payments to FinServ and PoolRe at issue here. See ECF No. 184-9 at 45–46 (SSA indicating that Feldman Law Firm “may act as the disbursing agent on behalf of the respective Operating Entity” in connection with 5 As of the date of the SSA, Feldman Law Firm was known as Stewart A. Feldman & Associates, L.L.P. See ECF No. 184-9 at 53 (First Addendum to the SSA dated November 3, 2004, indicating that Stewart A. Feldman & Associates, L.L.P. was at that time known as The Feldman Law Firm LLP). For ease of reference, the Court refers to Feldman Law Firm by its current name. 7 the shared services, including “[a]rranging to have insurance coverage”); ECF No. 180-1 ¶¶ 35– 37 (Franks Declaration explaining that Feldman Law Firm paid the $239,733 in premiums to FinServ and PoolRe on Capstone’s behalf). During the relevant time, Capstone served closely held businesses and their owners in the establishment and administration of captive insurance companies. See Dep. Tr. of Jeffrey Carlson at 16:8–14, ECF No. 182-1 (Capstone employee Jeffrey Carlson testifying at deposition that “the primary services provided by Capstone . . . were to establish and administer captive insurance companies”); ECF No. 180-3 ¶ 13 (Feldman Declaration explaining that “Capstone[’s] focus included providing services to closely held businesses and their owners in the formation, administration, and general implementation of captive insurance arrangements”). FinServ and PoolRe are both Capstone-managed insurers. See ECF No. 180-3 ¶ 65 (Feldman Declaration indicating that Capstone was an “administrative co-manager” of FinServ); id. ¶ 77 (indicating that “Capstone served as PoolRe’s statutory insurance manager for all relevant times”); ECF No. 189- 23 at 2 (Capstone Services Agreement “formaliz[ing]” PoolRe, Capstone, and Feldman Law Firm’s “prior oral agreements concerning turnkey administrative services arrangements”). All of FinServ’s direct insureds were corporate siblings of Capstone. ECF No. 180-3 ¶ 99 (Feldman Declaration indicating that, “[i]n addition to Capstone, FinServ also insured” nine other named insureds, “which were all owned directly or indirectly by Dr. Matz, [Mr. Feldman,] or both”); see, e.g., ECF No. 184-3 at 29 (listing named insureds on FinServ’s commercial crime insurance policy). The other insurers participating in PoolRe’s quota-share risk pool were all Capstone- managed. See ECF No. 190-3 at 2 (Capstone’s Summary of Third-Party Reinsurance Programs explaining that PoolRe “[l]imit[s] [its] pool participants to Capstone-administered companies”); ECF No. 180-3 ¶ 133 (Feldman Declaration explaining that “[a]s the manager, Capstone 8 employed” underwriters, insurance brokers, and actuaries “to support the pool, the Wesco program, and the 79 participating reinsurers”). C. Procedural History Capstone filed its Complaint on February 11, 2021. ECF No. 1. On October 14, 2021, after the Government filed its Answer but before discovery had begun, Capstone filed a Motion for Summary Judgment. ECF No. 22. On November 10, 2021, the Government filed a Motion for Relief Under Rule 56(d) of the Rules of the United States Court of Federal Claims (“RCFC”) as to Plaintiff’s Motion for Summary Judgment. ECF No. 24. The Court granted the Government’s motion and denied Capstone’s prior summary judgment motion without prejudice on February 1, 2022, emphasizing that this suit is a de novo proceeding involving a fact-intensive inquiry. Capstone Associated Servs. v. United States, No. 21-913, 2022 WL 601379, at *2–3 (Fed. Cl. Feb. 1, 2022). The parties then proceeded to discovery. On December 15, 2025, after the completion of discovery, Capstone filed its pending Motion for Summary Judgment. ECF No. 180. Capstone argues that it has established as a matter of law that the captive insurance transactions at issue constituted valid insurance under the appropriate legal test because: (1) FinServ and PoolRe were separate corporations rather than shams, ECF No. 181 at 38–41; (2) the transactions between FinServ, Capstone, and PoolRe transferred Capstone’s risk, id. at 41–42; and (3) FinServ and PoolRe distributed risk, id. at 42– 44. The Government filed its Response on February 3, 2026, arguing that: (1) FinServ lacked the unrelated risks required for risk-shifting, ECF No. 188 at 20–24; (2) none of FinServ’s alleged risk distribution strategies achieved their goals, id. at 24–29; (3) PoolRe did not face actual and insurable risk, id. at 29–33; (4) FinServ is not insurance in the commonly accepted sense, id. at 34–39; and (5) several issues of evidentiary weight, including issues of materiality and credibility, preclude summary judgment, id. at 39–42. Capstone filed its Reply in Support of its Motion for 9 Summary Judgment on March 2, 2026, arguing that the Government’s Response failed to establish a genuine dispute of material fact under the applicable legal test. See ECF No. 205 at 17–25. The Court heard oral argument on August 11, 2026. The motion is ripe for disposition. II. LEGAL STANDARDS A. Motions for Summary Judgment Summary judgment is warranted when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” RCFC 56(a). A dispute is genuine when a finder of fact may reasonably resolve a factual issue in favor of either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). And a fact is material when it “might affect the outcome of the suit” under the substantive law at issue. Id. at 248. “When deciding a summary judgment motion, all of the nonmovant’s evidence is to be credited, and all justifiable inferences drawn in the nonmovant’s favor.” Ruiz v. A.B. Chance Co., 234 F.3d 654, 671 (Fed. Cir. 2000) (citing Anderson, 477 U.S. at 255); see also Dairyland Power Co-op. v. United States, 16 F.3d 1197, 1202 (Fed. Cir. 1994) (similar). The Court need not limit its review to materials cited by the moving party. See RCFC 56(c)(3). Instead, the Court “has discretion to consider other materials in the record when making its determination.” 10A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2721 (4th ed.). “The moving party carries the burden of establishing its entitlement to summary judgment.” Quapaw Tribe of Okla. v. United States, 120 Fed. Cl. 612, 615 (2015) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986)). Thus, “[t]he party who has the burden of proof on a dispositive issue cannot attain summary judgment unless the evidence that he provides on that issue is conclusive.” Torres Vargas v. Santiago Cummings, 149 F.3d 29, 35 (1st Cir. 1998) (citing Calderone v. United States, 799 F.2d 254, 258 (6th Cir. 1986)); see also Albee Tomato, Inc. v. A.B. Shalom Produce Corp., 155 F.3d 612, 618 (2d Cir. 1998) (“Where the movant has the burden [of 10 proof], its own submissions in support of the motion must entitle it to judgment as a matter of law.”); Guzman v. Allstate Assurance Co., 18 F.4th 157, 160 (5th Cir. 2021) (explaining that a summary judgment movant who also bears the burden of proof must “establish beyond peradventure all of the essential elements of the claim or defense” (emphasis in original) (quoting Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986))). Only if the movant succeeds in this initial showing must the nonmovant identify specific facts showing a genuine issue for trial. See Guzman, 18 F.4th at 160; Anderson, 477 U.S. at 250. Because “[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are [factfinder] functions,” Anderson, 477 U.S. at 255, summary judgment is inappropriate “even where there is no dispute as to the evidentiary facts but only as to the conclusions to be drawn therefrom,” Gordon v. Kidd, 971 F.2d 1087, 1093 (4th Cir. 1992) (quoting Charbonnages de Fr. v. Smith, 597 F.2d 406, 414 (4th Cir. 1979)). B. Tax Partnership Cases Capstone challenges the IRS’s adjustments in the November 13, 2020 FPAA, a question subject to de novo review by this Court. Alpha I, L.P. ex rel. Sands v. United States, 682 F.3d 1009, 1025 (Fed. Cir. 2012). Accordingly, the Court gives no deference to the factual findings made by the IRS. Litman v. United States, 78 Fed. Cl. 90, 107 (2007) (citing George E. Warren Corp. v. United States, 135 Ct. Cl. 305, 314 (1956)). Generally, “the burden is upon the taxpayer to establish the amount of a deduction claimed.” Helvering v. Taylor, 293 U.S. 507, 514 (1935); accord Abrahamsen v. United States, 228 F.3d 1360, 1364 (Fed. Cir. 2000) (“In a tax refund case, the taxpayer bears the burden of establishing the right to a refund.”). While “[t]he characterization of a transaction for tax purposes is a question of law,” the underlying facts are subject to factfinding. Salem Fin., Inc. v. United States, 786 F.3d 932, 940 (Fed. Cir. 2015); see also Frank Lyon Co. v. United States, 435 U.S. 561, 581 n.16 (1978) (explaining that “[t]he general 11 characterization of a transaction for tax purposes is a question of law” although “[t]he particular facts from which the characterization is to be made are not”). III. DISCUSSION To determine whether the payments at issue constituted insurance premiums, the Court must apply binding precedent considering: (1) whether FinServ and PoolRe were separate, valid insurance companies or whether they were shams; (2) whether the transactions under the captive insurance arrangement transferred risk from Capstone to FinServ and PoolRe; and (3) whether FinServ and PoolRe distributed risk. The Court finds that genuine issues of material fact prevent Capstone from establishing that FinServ and PoolRe were not shams as a matter of law. Additionally, genuine issues of material fact regarding risk transfer and risk distribution similarly preclude summary judgment in Capstone’s favor. A. Under Supreme Court and Federal Circuit Precedent, a Transaction Constitutes Insurance, Rather than Loss Reserves, if the Captive Insurer Is Not a Sham, the Transaction Transfers Risk from the Insured to the Insurer, and the Insurer Distributes Risk. As an initial matter, the parties dispute the appropriate legal test for evaluating whether payments to a captive insurer constitute insurance premiums for federal income tax purposes. Capstone cites the Federal Circuit’s decision in Ocean Drilling & Exploration Co. v. United States, 988 F.2d 1135, 1150–51 (Fed. Cir. 1993), which, based on the Supreme Court’s decisions in Helvering v. Le Gierse, 312 U.S. 531, 539 (1941), and Moline Properties v. Commissioner of Internal Revenue, 319 U.S. 436, 438–39 (1943), applied a three-part test evaluating: (1) whether the captive insurer is a sham; (2) whether risk is transferred from the insured to the captive insurer; and (3) whether the captive insurer distributes risk. See ECF No. 181 at 31. The Government largely relies on cases from the Tax Court, which—similarly interpreting Le Gierse and Moline— set forth a four-part test: (1) existence of an insurable risk; (2) risk shifting; (3) risk distribution; 12 and (4) hallmarks of commonly accepted notions of insurance. ECF No. 188 at 6 (citing Rsrv. Mech. Corp. v. Comm’r of Internal Revenue, 34 F.4th 881, 904 (10th Cir. 2022); Avrahami, 149 T.C. at 190–91). Since “[t]here can be no question that the Court of Federal Claims is required to follow the precedent of the Supreme Court, [the Federal Circuit], and [the Federal Circuit’s] predecessor court, the Court of Claims,” Coltec Indus., Inc. v. United States, 454 F.3d 1340, 1353 (Fed. Cir. 2006), the Court must apply the test articulated by the United States Court of Appeals for the Federal Circuit in Ocean Drilling, consistent with the Supreme Court’s decisions in Le Gierse and Moline. See Ocean Drilling, 982 F.2d at 1150–51. However, there can also be no dispute that some facts relevant to the Ocean Drilling analysis are equally relevant when assessing a captive insurance arrangement under the Tax Court factors, and vice versa. See id. at 1151 (noting that the facts found to establish the insurer was not a sham under Moline also satisfied the Tax Court’s “presence of insurance risk” and “commonly accepted notions of insurance” factors). The first factor under Ocean Drilling requires the Court to analyze the captive insurer’s operations and the validity of its business existence. Although related companies must generally “be considered as separate entities in evaluating whether the transactions between the two companies resulted in risk shifting and risk distributing” for purposes of constituting insurance, if “the business operations of [the insurer] are a sham, [its] ‘corporate form may be disregarded.’” Id. at 1150 (quoting Moline, 319 U.S. at 439). To determine whether the captive insurer is a sham, courts look at whether—all facts considered—the insurer was created for a legitimate business purpose and is carrying on a legitimate business activity, or whether it was instead created or is operated for purposes of tax avoidance. See id. at 1151 (finding, after trial, that “[s]everal factors contribute to recognizing [the insurer] as a valid insurance company”); Kidde Indus., Inc. v. United 13 States, 40 Fed. Cl. 42, 51 (1997) (finding, after trial, that “the totality of the evidence indicates that . . . [the parent insured] had legitimate business reasons for creating a captive insurer subsidiary that had nothing to do with the tax advantages that would result”), dismissed, 194 F.3d 1330 (Fed. Cir. 1999). This facts-and-circumstances analysis may consider, among other things, (1) whether the common owner had a legitimate business reason for creating the captive insurer; (2) whether the common owner operated the captive insurer in a manner consistent with a separate, legitimate business; (3) whether the captive insurer had other business unrelated to that of the common owner; (4) the capitalization and financial condition of the captive insurer; (5) whether the insured faced true hazards; (6) whether insurance contracts were written and premiums were paid; (7) whether the market played a role in how the captive insurer determined its premiums; (8) whether the validity of claims were established before payments were made; (9) whether funds were maintained separately; and (10) whether, overall, the captive insurer was operated separately. Ocean Drilling, 982 F.2d at 1151; Kidde, 40 Fed. Cl. at 51. Under the second Ocean Drilling factor, the court must analyze whether the captive insurance arrangement transferred risk. Risk is transferred when the transaction reduces the insured’s variability of loss such that the level of risk that the insured initially transferred exceeds the level of risk it ultimately shoulders. Ocean Drilling, 982 F.2d at 1152; see Le Gierse, 312 U.S. at 539 (“[I]nsurance involves risk-shifting and risk-distributing[.]”). “The risk to which [this factor] refers is the risk that in the future a corporation will face uncertain and variable claims against it.” Kidde, 40 Fed. Cl. at 53 (citing Ocean Drilling, 988 F.2d at 1151). Risk transfer occurs when that risk shifts from the insured to the captive insurer. Id. Because the captive insurer agrees, in return for the receipt of the premium payments, to pay all claims covered under the policy, “in 14 effect, the insured shifts the risk to the insurer that the total amount of the claims against it (including the costs of processing) will exceed the premium paid.” Id. The third factor in Ocean Drilling requires determination of whether the captive insurer distributed its risk by spreading the risk among a sufficient number of unrelated policyholders. Ocean Drilling, 982 F.2d at 1153; see Le Gierse, 312 U.S. at 539. In other words, “[b]y increasing the total number of independent, randomly occurring risks that a [captive insurer] faces . . . , the [insurer] benefits from the mathematical concept of the law of large numbers in that the ratio of actual to expected losses tends to approach one.” Kidde, 40 Fed. Cl. at 53. While the Tax Court cases that the Government cites also consider risk transfer and risk distribution, the Tax Court cases additionally analyze whether the captive insurance arrangement involves insurable risks and whether the captive insurer satisfies “commonly accepted notions of insurance,” including whether: (a) the captive insurer “was organized, operated, and regulated as an insurance company;” (b) the captive insurer “was adequately capitalized;” (c) the insurance “policies were valid and binding;” (d) “the premiums were reasonable and the result of an arm’s- length transaction;” and (e) “claims were paid.” ECF No. 188 at 16 (quoting Rsrv. Mech., 34 F.4th at 907). The Federal Circuit did not adopt these Tax Court factors as independent factors in Ocean Drilling, but it did acknowledge that some of the same facts relevant to analyzing whether insurable risks exist and whether a captive insurer abides by “commonly accepted notions of insurance” are relevant to the sham analysis under Moline. See 988 F.2d at 1151; Kidde, 40 Fed. Cl. at 51 (analyzing whether the parent insured “had legitimate business reasons for creating a captive insurer subsidiary that had nothing to do with the tax advantages that would result,” before analyzing “whether the arrangement . . . is consistent with commonly accepted notions of insurance”). As noted above though, the Tax Court factors are not binding requirements for 15 establishing insurance in this Court. Instead, the Court must determine whether the premiums Capstone paid to FinServ and PoolRe were insurance under a totality of the circumstances. See Ocean Drilling, 988 F.2d at 1150–53; Kidde, 40 Fed. Cl. at 51, 56–58; Moline, 319 U.S. at 439; Le Gierse, 312 U.S. at 539. B. Genuine Issues of Material Fact Preclude the Conclusion that FinServ and PoolRe Were Not Shams as a Matter of Law. 1. Genuine Issues of Material Fact Preclude the Conclusion that FinServ Was Not a Sham. Whether FinServ was a separate, valid insurance company or was instead a sham is a question of fact on which Capstone bears the burden of proof. N. Ind. Pub. Serv. Co. v. Comm’r of Internal Revenue, 115 F.3d 506, 512 (7th Cir. 1997) (citing Bass v. Comm’r of Internal Revenue, 50 T.C. 595, 602 (1968)). As such, Capstone must affirmatively demonstrate that “no reasonable trier of fact could find other than for the moving party.” Torres Vargas, 149 F.3d at 35–36 (quoting Calderone, 799 F.2d at 258); see also Quapaw Tribe of Okla., 120 Fed. Cl. at 615; Albee Tomato, 155 F.3d at 618; Guzman, 18 F.4th at 160. Capstone has not met its burden as numerous genuine issues of material fact prevent the conclusion that FinServ was not a sham. Capstone argues that FinServ was a separate corporation from Capstone and was not a sham because: (1) FinServ maintained adequate capital under Anguilla law and satisfied all Anguilla regulatory requirements; (2) FinServ maintained separate financial accounts, issued written policies that covered recognized risks, relied on third-party quotations and independent actuaries in pricing its policies, and paid and documented claims after determining that the claims were proper; and (3) the IRS did not make any adjustments to FinServ’s 2016 tax return after audit. See ECF No. 181 at 38–40. While it does not appear that the Government disputes FinServ’s corporate legal status, its capitalization, or compliance with Anguilla law, these facts alone are insufficient to establish that FinServ’s separate status from Capstone was not a sham. See Ocean 16 Drilling, 988 F.2d at 1151 (citing adequate capitalization as but one of “[s]everal factors contribut[ing] to recognizing [the captive insurer] as a valid insurance company”). Moreover, the IRS’s previous action regarding FinServ’s 2016 tax return—which is not at issue here—is not binding in this de novo proceeding involving Capstone’s premium deductions. See Stobie Creek Invs., LLC v. United States, 82 Fed. Cl. 636, 663 (2008) (“The court tries factual issues de novo in tax refund suits; no weight is given to the factual findings made by the IRS during administrative proceedings.” (citing George E. Warren, 135 Ct. Cl. at 314)), aff’d, 608 F.3d 1366 (Fed. Cir. 2010). Because the Court must assess the totality of the circumstances, Capstone cannot satisfy its burden at the summary judgment stage by relying on a few undisputed or immaterial facts in isolation. Indeed, there are several genuine disputes of material fact regarding Capstone’s payment of premiums, FinServ’s processing and payment of claims, and whether FinServ’s loans to affiliates support a finding that FinServ was a sham. For example, the Government identifies a genuine dispute of evidentiary fact as to whether Capstone actually paid the purported premiums to FinServ and in what amount. See ECF No. 188 at 35–36. To establish that Feldman Law Firm paid FinServ $147,595 in premiums on behalf of Capstone during the 2016 tax year, Capstone relies on a declaration from Feldman Law Firm’s controller, Paul Franks, interpreting Feldman Law Firm’s general ledger. See ECF No. 180-1 ¶¶ 35–38 (Franks Declaration); id. at 134–35, 139–40 (excerpts from Feldman Law Firm’s general ledger attached to the Franks Declaration). The Government, however, counters with its expert’s anticipated testimony that Feldman Law Firm’s general ledger does not reflect that the premiums were paid in the manner that Mr. Franks indicates. See Decl. of Michael D. Pakter ¶¶ 20–27, ECF No. 189-2. Further, Feldman Law Firm’s general ledger only indicates an aggregate quarterly amount paid from Feldman Law Firm to FinServ on behalf of the SSA signatories—all of which are 17 Capstone-affiliated companies. ECF No. 180-1 at 134–35, 139–40 (excerpts from Feldman Law Firm’s general ledger indicating quarterly payments to FinServ for “captive premium[s]”); id. ¶ 38 (Franks Declaration indicating these “represent[] payments made by Capstone and other SSA signatories”); see also ECF No. 184-9 at 44 (SSA noting that all signatories have “overlapping ownership” with Feldman Law Firm). Capstone presents no contemporaneous evidence establishing the breakdown of these aggregate payments between the SSA signatories and instead relies on a memorandum to file drafted by Mr. Franks during the course of discovery in this litigation. See ECF No. 180-1 at 29 (April 23, 2024 memorandum to file indicating that “[t]he captive insurance premiums were allocated to the operating entities under [the SSA] on an agreed upon allocation of 50% of the costs born[e] by The Feldman Law Firm LLP, 25% by Capstone Associated Services, Ltd., and 25% of the costs by RSL Funding LLC”); see also id. ¶ 22 (Franks Declaration explaining that the April 23, 2024 memorandum was produced to the Government on or about April 30, 2024). At deposition, Mr. Franks conceded that the allocations were “determined prior to [his] being there” and that he knew of no other documentation of that determination aside from the memorandum. Dep. Tr. of Paul K. Franks at 19:7–20:12, 33:8–22, ECF No. 189-13. The SSA also does not identify a premium allocation, and the allocation described in Mr. Franks’s April 23, 2024 memorandum to file—50 percent to Feldman Law Firm and 25 percent each to Capstone and RSL Funding LLC (“RSL Funding”)—is inconsistent with other allocation methods used by the SSA signatories, which were based on per capita and per space calculations. ECF No. 203-25 at 2–3 (2016 Feldman Law Firm Allocation of Expenses). Taken together, these conflicting pieces of evidence create a genuine factual dispute as to whether Capstone paid premiums to FinServ and in what amount. A reasonable factfinder could find that the Government’s expert’s testimony regarding Feldman Law Firm’s ledger, along with 18 the ambiguity surrounding the allocation of premiums among the SSA signatories, indicates that Feldman Law Firm did not make the premium payments in the manner in which Capstone claims. See Anderson, 477 U.S. at 250 (e