Hauser Insurance on Tax Liability Insurance: Why You Need It to Protect Your Business

Tax liability insurance protects business owners and executives who are on the hook for taxes connected with the sale of their business or its assets to a third party. Tax liability insurance makes money available for taxes that otherwise would be payable to the IRS and others due to the transaction, thereby resolving disputes. When you sell your business or other assets to a new owner, you are responsible for paying all taxes due and taxes due to the transfer of the assets to the new owner.

Founded in 1950, Hauser Insurance & Financial Services is a premier nationwide provider of employee benefits and tax services. Hauser Insurance provides comprehensive planning services to Fortune 1000 and small business owners, offering tax planning, E&O insurance, group benefits, and employee benefits consulting. They recently celebrated several decades in Hauser Insurance, and it’s that customer service that has kept us going throughout our history.

First, tax liability insurance provides cash coverage for a party in a transaction that increases a tax liability during a transaction. In essence, tax liability insurance limits the risk of an adverse impact on cash flow. Even though cash flow is often discounted by the insured, cash flow is still an integral component of any investment opportunity.

Second, tax liability insurance protects the insured party’s ability to meet its tax obligation during the pre-closing transaction. For example, suppose a tax exposure is expected to increase the tax liability. In that case, this coverage ensures that the insured party has the cash available to satisfy the tax obligation during a transaction.

Tax liability insurance is often the leading cause of litigation in the business world, with every case claiming varying degrees of insurance liability. Incorporated entities have a primary tax liability on the gross amount of all activities conducted by them, including prof from taxable events, tax deductions from business income, and payments to foreign governments.

Businesses that conduct most of their business within the United States have income and losses taxed at the entity level. The business entity and its owners or key personnel may be subject to income tax at the entity level, and potentially, a share of corporate net income, too. Thus, tax liabilities may fluctuate over time depending on activities about earnings, sales, and financial decisions.