Tax insurance can be used to provide certainty with respect to legitimate tax positions taken by a taxpayer in connection with transactions entered into in the ordinary course of business. It is most effectively utilized in situations where:
no clear precedence or guidance from the applicable taxing authority is available;
the amount of the potential tax exposure relative to the size of the transaction results in an unwillingness to retain tax risk;
a private letter ruling from the appropriate taxing authority cannot be received in the time-frame needed to close the transaction, because the tax issue is one for which the taxing authority has a
“no rule” policy,
or because the issue is deemed to be
too fact-intensive
by the taxing authority.
Tax insurance can also be an effective compliment to private letter rulings. Since private letter rulings are issued in reliance upon representations made in the ruling request, the product can be utilized to provide a taxpayer with protection for certain representations that it has made in reliance upon statements made by a third party, such as the party that sold the asset or business, to which the taxpayer in turn has made to the taxing authority.
Ambridge’s tax insurance product can be utilized in connection with a wide variety of tax issues faced by its clients provided that they arise in the ordinary course of business.
