Excise Tax May Not Be Imposed on Validus's Retrocession Transactions, D.C. Appeals Court Affirms

WASHINGTON, D.C. — The Internal Revenue Service may not assess excise tax on retrocessional transactions, a federal appeals court has affirmed, and as such, Validus Reinsurance Ltd. is entitled to a refund of taxes it paid for nine retrocession policies issued by foreign reinsurers.

On May 26, the District of Columbia Circuit Court of Appeals held that 26 U.S.C. § 4371 “contains a clear internal limitation on its application to reinsurance policies” and forecloses the IRS’s argument that it properly assessed an excise tax on Validus Re’s retrocession transactions.

Pursuant to 26 U.S.C. § 4371, insurance transactions involving policies issued …