Surge in Tax Insurance Purchases as Companies Brace for Increased Government Audits (Live Insurance News)

Surge in Tax Insurance Purchases as Companies Brace for Increased Government Audits

  Monday, December 4th, 2023 Source: Live Insurance News

The insurance industry is witnessing an unprecedented surge in tax insurance policy purchases. This spike is primarily driven by global governmental crackdowns on tax avoidance, prompting businesses to seek protection against potential costly disputes or unfavorable rulings. Brokers and underwriters predict that by the end of December, the number of tax insurance policies sold will reach a record high. The increase in tax investigations and the costs associated with losing a dispute have contributed to this trend. Despite stricter enforcement, tax insurance policies have become more affordable due to the growing number of insurers offering this coverage.

Some companies are acquiring coverage to protect against disputes amounting to over $1 billion with agencies like the IRS. Insurers remain optimistic about the profitability of this sector, anticipating that a significant portion of enforcement actions may not result in substantial payouts. Bill Kellogg, head of North American tax insurance at Ryan Transactional Risk, notes that governments, facing budget pressures, might adopt more aggressive audit stances, leading to an upswing in audits and disputes. This situation presents an opportunity for the tax insurance market to support taxpayers with strong positions in potential disputes.

The recent Inflation Reduction Act, boosting the IRS’s budget significantly for auditing high-earning individuals, large partnerships, and corporate entities, has also fueled this trend. Despite attempts by Republican lawmakers to reclaim some of these funds, the IRS is ramping up its workforce to enhance enforcement efforts, further driving the demand for tax insurance.

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