Tax Opinion Insurance — insurance policies designed to cover costs arising from a specific tax position
taken by an insured that is successfully challenged by the Internal Revenue
Service (IRS). Such a challenge could involve additional tax payments,
interest, penalties, and defense costs. A corporation might, for example,
consider purchasing tax opinion insurance if its tax return included a
substantial deduction for an item that, while legitimate, could be viewed as
questionable and ultimately disallowed by the IRS. In this situation, tax
opinion insurance would cover the costs associated with the corporation's
tax position, except any additional tax due.