A Switch in Time: The Sixth Circuit Examines the Limitations Period for the Prohibited Allocation Excise Tax, Part II

ESOPOn Tuesday, September 15, I reported on a recent Sixth Circuit opinion Law Office of John H. Eggertsen, P.C. v. Commissioner, No. 14-2591, 2015 U.S. App. LEXIS 15930 (6th Cir. Sept. 8, 2015), which dealt with a substantive issue under Section 4979A of the Internal Revenue Code, as well as the relevant limitations period. The limitations issue is interesting because there were two statutes that might control and because the government flip-flopped on which should apply.

Although there was an express provision in Section 4979A, the Sixth Circuit concluded that the general assessment limitation in Section 6501(a) applied and that the excise tax was assessed on a timely basis, as the taxpayer had failed to file the requisite excise tax return.… Read More

A Switch in Time: The Sixth Circuit Examines the Limitations Period for the Prohibited Allocation Excise Tax


ESOPCongress has long favored employee stock ownership plans (ESOPs) and it has created tax incentives to promote them. But a troubling pattern emerged: a small business owner, such as a lawyer or an accountant in a solo practice, would convert her business into an S Corporation. Then she would contribute all of the shares to an ESOP, which would allocate the shares to the owner’s retirement account. The income generated in the practice passed through to the ESOP untaxed because the practice was an S Corporation. The ESOP was exempt from tax at the plan level, and the owner was exempt from tax on the income associated with the stock until the stock was distributed to her at retirement.… Read More

Excise Taxes and Reinsurance: Wholly Foreign Retrocessions Are Not Taxable, Part II.

This post will continue my discussion of Validus Reinsurance, Ltd. v. United States, 2015 U.S. App. LEXIS 8602 (D.C. Cir. May 26, 2015), focusing on the D.C. Circuit’s analysis of the presumption against extraterritoriality, which led it to conclude that the excise tax on reinsurance purchased from foreign insurers imposed by Section 4371 of the Internal Revenue Code did not reach wholly foreign retrocession transactions.

The D.C. Circuit began its analysis by explaining that the presumption against extraterritoriality directs a court to presume that a statute has no extraterritorial effect unless affirmative Congressional intent is “clearly expressed.” Validus, 2015 U.S.… Read More

Excise Taxes and Reinsurance: Wholly Foreign Retrocessions Are Not Taxable.

Under Section 4371 of the Internal Revenue Code, foreign insurers are subject to an excise tax on casualty insurance and indemnity bonds, provided that they are issued to an “insured.” I.R.C. § 4371(1). Related reinsurance policies are also subject to this tax. I.R.C. § 4371(3). An “insured” is either “a domestic corporation or partnership, or an individual resident of the United States, against, or with respect to, hazards, risks, losses, or liabilities wholly or partly within the United States,” or “a foreign corporation, foreign partnership, or nonresident individual, engaged in a trade or business within the United States, against, or with respect to hazards, risks, or liabilities within the United States.” I.R.C.… Read More