Tax Related Developments

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Earlier this month we reported here that Florida had withdrawn from the Non-Admitted Insurance Multi-State Association (“NIMA”), a compact between various state to distribute surplus lines premium taxes. We can now report that NIMA has announced its unanimous decision to dissolve. The expectation is that dissolution of the tax compact…

Read More NIMA Formally Dissolves as Participatory States weigh in on Future Tax Treatment of Multi-State Risks

Three recent decisions (March 3, 2016) by a New York State Division of Tax Appeals administrative law judge help to clarify the taxation of unauthorized insurance companies subject to New York State taxation.

New York State has over recent years changed in certain significant regards both the substantive law and…

Read More New York State Clarifies Taxation of Unauthorized Insurance Companies

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On December 18, 2015, Congress enacted the Protecting Americans from Tax Hikes Act of 2015, making, among other items, several significant changes to the provisions of Internal Revenue Code Section 831(b), which provides generally favorable tax treatment for electing small insurance companies. Certain of these changes…
Read More Congress Expands and Tightens Section 831(b) Small Insurance Company Election

On December 9, in Dorrance v. The United States, the Ninth Circuit overturned a favorable district court decision for taxpayers in demutualizations. The Ninth Circuit ruled that a taxpayer owning insurance policies in a mutual insurance company had a zero tax basis in the attendant membership rights which accompanied…

Read More Ninth Circuit Overturns Taxpayer-Friendly Decision in Demutualizations

During the last few years, many states have undertaken aggressive efforts to collect sales tax on amounts paid for service contracts a/k/a extended warranties, which in most states are deemed not to be insurance products. A recent example of this effort is the South Carolina Administrative Law Court’s decision in…
Read More SC Court Says Sales Tax Inapplicable to Cellphone Insurance Premiums

As discussed in our earlier article on the topic (a copy of which can be accessed here) and our prior entry on this site (which can be accessed here), uncertainty remains over whether the self-procurement tax and regulatory provisions of the Non-admitted and Reinsurance Reform Act, enacted as a part…

Read More Legislation Reintroduced to Clarify Application of NRRA to Captives

On May 26, 2015, the United States Court of Appeals for the District of Columbia upheld a lower court decision and ruled that the IRS could not impose excise tax on certain wholly-foreign retrocessions of insurance. The decision represents a second major victory for Validus, a Bermuda reinsurer. The IRS…

Read More Validus Wins Round Two: Wholly-Foreign Retrocessions Not Subject to Federal Excise Tax

The Internal Revenue Service late last week issued proposed regulations addressing what constitutes the “active conduct of an insurance business” for purposes of the passive foreign investment company (“PFIC”) rules. These regulations were issued in part in response to the perceived problem of hedge funds using offshore reinsurance companies to…
Read More Proposed Tax Regulations Issued on PFIC Rules for Insurance Companies

Companies looking to establish insurance coverage, especially in situations involving a captive type of arrangement, will, as always, need to focus on the qualification of the coverage as insurance for U.S. federal income tax purposes. While this traditionally involves an analysis of the risk shifting and risk distribution aspects of…
Read More Internal Revenue Service finds Contracts protecting against Foreign Currency Fluctuations not to be Insurance

President Obama’s fiscal year 2016 budget once again contains a revenue proposal to tax certain reinsurance transactions between U.S. insurers and foreign reinsurers.  The proposal would apply to a U.S. ceding company that reinsures property/casualty risks with an affiliated foreign reinsurer.  Under the proposal, in general terms, a U.S. ceding…
Read More Taxing Foreign Reinsurance Transactions: Déjà vu All Over Again