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May 13, 2022

Entity did not qualify as an insurance business - failed to distribute risk or sell typical insurance policies, Tenth Circuit affirms

The Tenth Circuit has affirmed the Tax Court in Reserve Mechanical Corp. v. Commissioner, agreeing that the taxpayer was not engaged in the business of insurance, did not qualify for a tax exemption as small insurance company, and was liable for a 30% tax under IRC Section 881(a) on purported insurance premiums it had received. The Tax Court had found the taxpayer did not adequately distribute risk among a large number of independent insureds and the policies it issued were not insurance in the commonly accepted sense. (See Tax Alert 2018-1321, highlighting the Tax Court opinion.) 

A Tax Alert is forthcoming.