Performing complex business transactions requires business leaders to evaluate the previous tax-specific or tax exposure indemnities frequently. To execute a successful business transaction, the involved parties need to do their due diligence on various fronts, including tax liability concerns for both businesses. Hauser Insurance, the leading insurance company headquartered in Cincinnati, Ohio, offers an overview of tax liability insurance for complex transactions conducted in various companies. The company claims that tax liability insurance works as an RWI (representation, warranty, and indemnity) insurance policy if a business has potential tax exposures. Nevertheless, RWI works differently when it comes to recognized and unrecognized tax exposures. Unlike tax liability insurance that includes both identified and unidentified tax exposures, RWI accepts all identified risks from its coverage.

As Hauser Insurance Group explains, RWI insurance usually facilitates merger and acquisitions transactions. However, in the absence of RWI, tax liability insurance provides an alternative buyer protection method regarding known tax issues. Besides, a tax liability insurance coverage may eliminate the need for price adjustments or seller protection. Hauser Insurance also claims that tax liability insurance offers pre-transaction protection as it allows the seller to buy a policy for identified risks before the transaction. The Group adds that tax liability insurance covers the loss of items like taxes and interests and penalties associated with taxes. However, the Group clarifies that tax liability insurance does not cover certain losses, such as those that occur when the law gets adjusted.

Hauser Insurance says that a business should submit a tax analysis report showing insured tax positions in order to acquire tax liability insurance. The Group further adds that a well-crafted tax liability insurance policy should have the ability to facilitate the closure of a merger or acquisition. The insurance should include other transactions with tax-specific indemnities or identified tax exposures. Hauser Insurance asserts that tax liability insurance’s terms, exclusions, and costs vary depending on the requested coverage.

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