As the IRS prepares to receive a significant boost in funding and staff, tax insurance may be a solution to help high-income taxpayers and major corporations gain some certainty around their tax positions.
Tax insurance is exactly what it sounds like—a solution to tax complexity that transfers the risk of successful tax authority challenges to an insurer. Introduced in the 1980s, its usage has grown in recent years, particularly in mergers and acquisitions as a precautionary measure against possible legal headaches, clawbacks of anticipated tax benefits, and future cash outlays.
It protects policyholders enmeshed with complex tax planning who, although adopting seemingly reasonable positions, nonetheless may be unexpectedly tripped up by the intricacies of navigating the US tax code. For many, an IRS dispute over a tax return position could mean assessments of millions to hundreds of millions of dollars. Fortunately, the right tax insurance policy can preempt such a possibility.