Tax insurance provides coverage for a tax risk whereby an insurance company agrees to indemnify the insured for loss resulting from a challenge by a tax authority.

Coverage is tied to a known and identified tax position.

Coverage is intended to make the insured whole by covering taxes, interest, penalties, defense costs and gross up.

Insurance can be obtained without a formal tax opinion.

The insurance can be used to replace or backstop an indemnity in a transaction agreement for a specific tax risk.

Covered matters for businesses typically include tax consequences associated with an M&A transaction, reorganizations/spin offs, risks identified in diligence, tax credits, S corp qualification, valuation/computation issues, tax deferral and other operational tax risks.

Coverage matters for individuals typically include ordinary/capital characterization, compensation issues, withholding taxes and trust/estate planning. WHY IS IT USED?

M&A Transaction

Facilitate deal negotiations

Maximize buyer investment protection

Maximize seller proceeds

Minimize execution risk

Minimize post closing liabilities

Internal Transactions

Transfer liability to insurer

Risk mitigation

Mitigate financial statement impact

Achieve non tax business objectives HOW MUCH DOES IT COST?

Total cost generally is approximately 2% to 5% of the limit of liability purchased

Self insured retentions generally are $50k --$250k for defense costs only, with the first dollar of tax loss covered by the policy. HOW LONG DOES IT TAKE TO OBTAIN COVERAGE?

10 14 days from initial engagement to policy inception

Marketing/soliciting quotes: 3 5 days

Underwriting: 3 8 days

Policy negotiation: 2 3 days HOW LONG DOES COVERAGE LAST? The coverage period is typically 7 10 years which is intended to encompass the full statute of limitations. LOCKTON’S INSURER PARTNERS Our market includes 2 0 + A rated insurers, ranging from large insurance companies to managing general underwriters (who underwrite on behalf of backing insurance companies). REQUIRED INFORMATION

Initial marketing

Written analysis to support the tax position, if available

Tax due diligence work product prepared by, or on behalf of, the insured, if applicable

High level estimate of tax exposure (range is sufficient)


Full set of applicable documents, including data room access for selected insurer and their advisors

All written tax due diligence work product prepared by, or on behalf of, the insured (on a non reliance basis)

A###-###-#### minute underwriting call with the Insured and its advisors

Robert --@----.com