Tax authorities around the world appear to be increasing enforcement. From increased audit activity to the deployment of advanced technologies, tax authorities are increasingly focusing on large taxpayers, complex structures, and high-value transactions. As scrutiny rises, so does risk and the need for sophisticated risk-transfer solutions, positioning tax liability insurance as an increasingly valuable tool for corporations, investors, and advisors in navigating the rapidly developing tax environment.
Tax liability insurance has evolved into a flexible solution for managing certain known tax risks. Its applications extend far beyond M&A, offering value in a wide range of transactions and scenarios. Whether it is protecting an investment, safeguarding a balance sheet, or derisking decision-making, tax insurance can be a highly effective tool. As awareness continues to grow, so does adoption, with tax liability insurance becoming increasingly important to companies achieving their strategic ambitions.
In the US, the IRS has invested in enforcement capabilities and stated an intention to focus on high-income individuals, large corporations, and complex partnership structures. Notably, the use of artificial intelligence in audit selection and administration signals a new era of data-driven enforcement. For taxpayers, this creates both uncertainty and opportunity. Tax liability insurance, which allows taxpayers to transfer identified risks to insurers with established financial strength ratings, is increasingly used to help protect investments, balance sheets, and transaction value. As tax authorities become more assertive and targeted, the value of greater certainty can be significant.
US regulatory reforms
The passage of the One Big Beautiful Bill Act (OBBBA) in July 2025 marks a significant turning point in US tax reform. With changes to federal taxes, credits, and deductions, the legislation introduces both complexity and opportunity. One of the most closely watched elements is the introduction of foreign entity of concern (FEOC) rules, which can affect the eligibility of certain clean energy tax credits. These rules apply to certain entities, including those involving jurisdictions such as China, Russia, Iran, and North Korea and can influence everything from supply chain decisions to financing structures.
Eligibility for many of these credits can hinge on technical determinations, such as when a project began construction or when it was placed in service. These concepts, while long-standing in tax law, have taken on heightened importance under the OBBBA due to their role in determining both FEOC applicability and credit phaseouts.
The result is a growing need to insure these positions. As the financial consequences of an adverse IRS determination increase, taxpayers are turning to tax insurance to help increase confidence around key assumptions. At the same time, underwriters may apply greater scrutiny to these risks, reflecting the higher stakes involved.
Clean energy tax credits
The transformation of clean energy tax credits into transferable assets (enabled by the Inflation Reduction Act of 2022) has created a new market. Since 2023, these credits have been bought and sold. This innovation has attracted significant interest, bringing in tax credit buyers who may not have direct involvement with clean energy projects but are seeking to reduce their US income tax liability. However, it also introduces risk: If a credit is later disallowed due to noncompliance or an IRS challenge, it could lose some or all of its value.
Tax liability insurance can help mitigate specific tax risks and may provide additional comfort for large-scale risk transfers. It is an increasingly common risk-management component supporting this new market, especially as the rules governing these credits continue to evolve.
Beyond M&A
Although it can be associated with M&A, tax liability insurance is used far more broadly. While it remains a valuable tool throughout the M&A lifecycle, from prebid structuring to postdeal protection, companies increasingly utilize its value in non-M&A contexts, viewing it as a standard risk-management tool for a range of scenarios, including internal reorganizations, distributions, and debt financings. In these situations, the ability to transfer a known tax risk can be transformative, allowing businesses to proceed with strategic initiatives with reduced uncertainty about potential future tax liabilities.
The evolution of the tax insurance market has been shaped in part by increased competition. The entry of new providers, many staffed by experienced tax professionals, has expanded underwriting capacity and broadened risk appetite. This initially led to some softening of rates. However, as demand for the product continued to rise, rates increased in 2025. For 2026, the expectation is a stable pricing environment, with rates broadly in line with those of the previous year, based on current market indications. This reflects a healthy balance between strong demand and the need for underwriting discipline.
Despite the rates, the ability to secure greater confidence and unlock value can outweigh the premium, and increased enforcement arguably enhances the importance of this specialty product. Capacity is also evolving, particularly in the clean energy sector, where larger projects require higher policy limits. As transactions grow in size and complexity, insurers must ensure they can meet demand while maintaining prudent risk-management practices.
Outlook, opportunities and challenges
Following a surge in 2024 when submission volumes increased for many market participants, the US tax liability insurance market maintained its momentum throughout 2025, reflecting sustained interest across M&A and non-M&A transactions. The 2026 outlook is equally strong. Based on our current pipeline and market feedback, submission volumes are expected to at least match 2025 levels, with many market participants anticipating further growth. This expansion is driven by several factors: continued enforcement activity, the need to insure clean energy tax credit transfers and investments, increasing familiarity with the product, and its growing application beyond traditional M&A transactions.
The key opportunity and challenge for the tax liability insurance market in 2026 is scalability. With submission volumes continuing to rise, the ability to deliver timely, efficient, and well-underwritten solutions will be critical. This has already prompted investment in talent across both brokerages and insurance providers. Expanding teams and enhancing technical expertise will be essential to meeting client needs while preserving underwriting quality. However, increased complexity driven by legislative change requires deeper technical analysis and documentation. Ensuring transparency between all parties will be vital to maintaining trust and efficiency.
Resilience in 2026 and beyond will depend on maintaining a careful balance between growth and discipline. As the market expands, insurers must remain grounded in strong underwriting principles, ensuring that policies are supported by rigorous analysis and appropriate protections. Chasing growth at the expense of underwriting discipline, particularly where risk selection is compromised to justify premium targets or tax team expansion, can lead to an adverse loss experience. Equally, open communication between all stakeholders enables more efficient processes and better outcomes. As the market matures, this collaborative approach will be key to sustaining long-term growth.
This article is for general information only and does not constitute tax, legal, or insurance advice. Any insurance coverage is subject to underwriting and to the terms, conditions, and exclusions of the applicable policy.
