Tax insurance is an often overlooked solution to reduce or eliminate the economic burden of historical or potential future tax exposures.
Buyers and sellers of businesses and assets often disagree about the value of certain aspects of the business, or the presence or quantum of risk with respect to current or future tax positions. These disagreements often result in unnecessarily large adjustments to bid values, or demands for specific indemnifications that are out of touch with current market trends. Tax insurance can often replace the adjustment to bid values at a fraction of the cost. Tax insurance can also backstop (or replace) a seller’s indemnity to allow for economic certainty with respect to uncertain tax exposures. In the renewable energy context, tax insurance is routinely used to protect against challenges to or recapture of tax credits.
The growing sophistication of tax expertise within insurance brokers and carriers has facilitated an exponential expansion of the use of tax insurance outside of the third-party transaction context. Lockton’s experienced tax professionals are utilizing decades of advisory experience to efficiently move tax risks to the insurance markets.
There is growing use of tax insurance to (i) address uncertainty in transfer pricing, (ii) mitigate risk on spinoff, reorganization and other restructuring transactions, and (iii) address risks that fall within the many “no rule” areas of the IRS private letter ruling system.
As claims for tax insurance policies continue to increase and get paid, this reinforces the product’s attractiveness and brings it closer to the ubiquitousness of representations and warranties insurance.
Taxpayers and their advisors do not need to self-assess whether tax insurance is available, how much a policy may cost, or how long it would take to bind tax insurance. There is no cost or obligation to consult with a Lockton tax professional to obtain guidance and nonbinding quotes for a tax insurance policy. If tax risks are keeping you up at night, consider tax insurance and call us.
Tax insurance for tax certainty!