Document Type

Article

Publication Date

2009

Publication Title

Yale Journal on Regulation

Publication Title (Abbreviation)

Yale J. on Reg.

Volume

26

Issue

1

First Page

1

Last Page

36

Abstract

Uncertainty about tax results is an ever-present obstacle to business transactions despite the extensive number of Internal Revenue Code sections and Treasury Regulations. Some insurance companies now provide an insurance product to protect taxpayers against adverse tax consequences from proposed transactions. Ironically, this new insurance product, labeled “tax insurance,” poses uncertain tax consequences itself This Article argues that if the adverse tax consequences arise (that is, the taxpayer has additional tax liability) and the insurance company is contractually required to cover that liability, the tax insurance proceeds are not includable in the insured’s gross income. As part of the reasoning that underlies this conclusion concerning tax insurance, the Article examines and develops a novel approach that provides a tax policy justification for excluding general liability insurance proceeds from the insured’s income. The Article concludes that the same justification also applies to exclude tax insurance proceeds from the insured’s gross income. The Article also examines whether the premiums paid for tax insurance coverage are deductible business expenses. Finally, the Article examines the appropriate tax treatment of other types of tax indemnity arrangements.

Rights

© 2009 Jeffrey H. Kahn

Comments

First published in Yale Journal on Regulation.

Faculty Biography

http://www.law.fsu.edu/our-faculty/profiles/kahn

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