Tax Insurance: Reducing Some Risks While Creating Others?

Introduction

Taxpayers, like all people, are risk averse for the most part; they want to avoid financial uncertainty to the greatest extent possible. This is difficult to accomplish when the Internal Revenue Service (“IRS”) regularly attacks certain issues, often concluding that taxpayers owe additional taxes, penalties, and interest for several years. It is also a challenge in situations where the IRS either refuses to grant advance approval by issuing a Private Letter Ruling or simply cannot do so in a timely manner. The reality is that many proposed transactions cannot be put on ice for months while the IRS gathers data, conducts its analysis, and goes through a multi-level approval process.