Magazine article Risk Management

State Law May Change Procurement Rules

Magazine article Risk Management

State Law May Change Procurement Rules

Article excerpt

In State of Florida, Department of Insurance National Amusement Purchasing Group the courts again considered whether a state can require that an insurer providing coverage for a purchasing group be either licensed in the state or admitted as a surplus lines carrier.

According to court documents, National Amusement sent notice to the Florida Department of Insurance of a plan to offer liability insurance to businesses located in Florida. Policies would be issued by Bel-Aire Insurance Co. of St. Louis.

The department filed suit seeking a declaratory judgment and injunctive relief. It contended that under Florida law a purchasing group may purchase insurance for risks located in the state only from a risk retention group that is certified or licensed in the United States, an authorized insurer or an eligible surplus lines insurer. It also contended that because Bel-Aire met none of these criteria, any business transacted in Florida would not be in compliance with applicable provisions of the state's law.

After a lengthy discussion of the Risk Retention Act and defendant's claims that the insurer need only be licensed in the state in which the purchasing group is located, the court concluded that the act did not pre-empt state law. In addition, it found that insurance could not be provided through Bel-Aire in Florida even though it was provided through a purchasing group.

A Question of Recoupment

According to a technical advice memorandum, a U.S. corporation paid insurance premiums to its wholly owned foreign insurance subsidiary and deducted the payments for federal income tax purposes as ordinary and necessary business expenses. The corporation's tax returns were audited, and the deductions for premium payments were disallowed because the payments were not considered to be insurance premiums. The corporation was unable to file timely claims for refunding all federal excise taxes paid as the statute of limitations had expired before the income tax audit was completed.

Relying on the 1935 case Bull v. United States, the Internal Revenue Service held that, under the doctrine of equitable recoupment, those excise tax payments could be used to offset the income tax due. The IRS stated that there were two basic prerequisites for applying the doctrine: a single transaction is inappropriately subject to both income and excise tax, and a claim for refund of the federal excise tax is barred by the statute of limitations. …

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