Delivering Certainty: Eliminating a D.C. Tax Exposure for a Smooth Exit

Castle Harbour assisted a real estate investment fund in eliminating a local tax uncertainty during the fund’s exit from a major investment.

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The fund had sold its sole remaining property – a high-value commercial building in Washington, D.C. – realizing a substantial capital gain. Because the sale effectively marked the end of the fund’s business activities in D.C., there was an open question under D.C. tax regulations whether the gain would be subject to the district’s unincorporated business franchise tax (D.C. UBT) at the entity level, or if it would pass through to the fund’s out-of-state investors untaxed. This ambiguity threatened to tie up proceeds in reserve and delay final investor distributions. Castle Harbour worked closely with the fund’s tax counsel to resolve the issue via insurance. By clearly articulating the position that the fund’s D.C. business had terminated (making the gain exempt at the entity level), the team obtained an insurance policy covering the risk that D.C. authorities might nonetheless attempt to tax the sale. This solution delivered full certainty to the fund and its investors: they could confidently wind down the fund and distribute sale proceeds, knowing any unforeseen D.C. tax assessment on the transaction would be covered by the insurer.

Policy type: Tax Insurance (Contingent Tax Risk)
Size: $100MM – $250MM
Sector: Real Estate

Buyer type: Financial Sponsor
Buyer jurisdiction: U.S.
Seller jurisdiction: U.S.

Overcoming Cross-Border Tax Uncertainty: Facilitating a Strategic Investment

Castle Harbour was engaged to navigate a complex international tax dispute in the context of a private equity investment.

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A global infrastructure fund was acquiring a significant minority stake in a U.S. company with operations in Mexico. During the deal, a pending challenge by the Mexican tax authority came to light: the authority claimed that the company’s Mexican subsidiary owed substantial withholding taxes on intra-group technical service fees paid to the U.S. parent, despite a tax treaty that exempted those payments. The potential exposure – including back taxes, denied deductions, and penalties spanning multiple years – posed a serious concern for the investor. Leveraging its cross-border tax expertise, Castle Harbour worked with the client’s advisors to turn this contentious issue into an insurable risk. The team emphasized the robust defenses available (including favorable rulings the company had already obtained from Mexican authorities) and tapped into underwriters experienced in treaty-based tax matters. Castle Harbour negotiated a tax insurance policy to cover the disputed liability, ensuring that if the Mexican tax claim were ultimately upheld, the financial impact would fall on the insurer. This innovative solution gave the investor the certainty to proceed with the transaction, knowing that a challenging foreign tax issue had been effectively neutralized.

Policy type: Tax Insurance (Contingent Tax Risk)
Size: $500MM - $1B
Sector: Infrastructure / Logistics

Buyer type: Financial Sponsor
Buyer jurisdiction: U.S.
Seller jurisdiction: U.S.

Preserving Value: Mitigating an Employee Reimbursement Tax Risk

Castle Harbour supported a corporate acquirer in overcoming a tax exposure that surfaced during the acquisition of an aviation services company.

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Diligence revealed that the target had been paying its employees per diem allowances and travel reimbursements under an “accountable plan” – a tax-favored arrangement whereby such payments aren’t treated as wages if certain IRS rules are met. The concern was that if the IRS later found the plan to be non-compliant, those routine employee payments could be reclassified as taxable wages, leaving the company on the hook for years of unpaid payroll taxes, interest, and penalties. Castle Harbour drew on its technical tax knowledge to craft an insurance solution transferring this risk. The team prepared a persuasive underwriting submission demonstrating the company’s compliance efforts and obtained a policy affirming the tax treatment of the reimbursements. By insuring this exposure, Castle Harbour allowed the buyer to close the deal without a payroll tax cloud on the horizon – preserving the transaction value and sparing the company from a potentially costly post-closing surprise.

Policy type: Tax Insurance (Buyer-Side)
Size: $100MM – $250MM
Sector: Aviation Services

Buyer type: Strategic (Corporate)
Buyer jurisdiction: U.S.
Seller jurisdiction: U.S.

Preserving a Key Tax Election in an M&A Transaction

Castle Harbour was engaged by a financial sponsor to address a latent tax risk related to a previous acquisition structured under Section 338(h)(10) of the tax code.

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In the earlier deal, the buyer had elected to treat a stock purchase as an asset acquisition for tax purposes – a valuable election that provides a stepped-up asset basis – but some of the target’s shareholders rolled a portion of their equity into the new company. This partial equity rollover introduced uncertainty about whether the 338(h)(10) election was technically valid. Drawing on its transactional tax expertise, Castle Harbour helped the client mitigate this risk. The team distilled the issue (the potential failure of the tax election due to the rollover) into a clearly defined insured event and approached the insurance market with a comprehensive analysis from tax counsel. Castle Harbour successfully obtained a tax insurance policy that would protect the client if the IRS ever invalidated the election. This coverage preserved the expected tax benefits of the deal and shielded the client from a significant tax cost that would have arisen if the step-up were lost.

Policy type: Tax Insurance (Buyer-Side)
Size: $100MM – $250MM
Sector: Transportation Services

Buyer type: Financial Sponsor
Buyer jurisdiction: U.S.
Seller jurisdiction: U.S.

Overcoming Complex REIT Tax Hurdles for a Seamless Acquisition

Castle Harbour enabled a strategic acquirer to move forward with confidence on a major acquisition by resolving a technical tax exposure involving a Real Estate Investment Trust (REIT).

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During diligence, the target REIT discovered an error in its tax accounting methods that required a change in accounting and triggered a large one-time income inclusion (a Section 481 adjustment). This adjustment raised concerns that the REIT might inadvertently violate complex IRS rules (such as the REIT income tests or distribution requirements), potentially leading to penalty taxes or loss of tax benefits. Castle Harbour worked closely with the company’s tax advisors – even incorporating the guidance of a favorable IRS private ruling – to structure a narrowly tailored insurance policy covering the specific risks arising from the accounting change. By securing coverage for those contingent tax exposures, Castle Harbour removed the remaining uncertainty around the REIT’s tax status. The buyer was able to proceed with a seamless acquisition, assured that any unforeseen tax consequences from the REIT’s compliance correction were fully insured.

Policy type: Tax Insurance (Buyer-Side)
Size: $500MM - $1B
Sector: Telecommunications Infrastructure

Buyer type: Strategic (Corporate)
Buyer jurisdiction: U.S.
Seller jurisdiction: U.S.

Safeguarding a Cross-Border Dividend Plan Amid IRS Scrutiny

Castle Harbour assisted an individual client in protecting a complex cross-border dividend strategy that had come under IRS scrutiny.

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The taxpayer had restructured an overseas holding company to take advantage of treaty benefits and claim a large dividend as qualified dividend income taxed at a favorable rate. The IRS challenged this plan – questioning the foreign corporation’s residency and treaty eligibility – which threatened to reclassify the dividend as ordinary income subject to a much higher tax rate. In the midst of active Tax Court litigation, Castle Harbour leveraged its expertise in international tax to secure an insurance policy for the contested position. By isolating the specific treaty and residency issues and highlighting a strong legal opinion in the client’s favor, the team obtained coverage that would pay any additional tax, interest, and penalties if the court ultimately ruled against the taxpayer. This gave the client financial certainty and peace of mind to confidently see the case through, knowing a negative outcome would be mitigated by insurance.

Policy type: Tax Insurance (Litigation Risk)
Size: $50MM – $100MM
Sector: N/A (Individual Taxpayer)

Buyer type: Individual Taxpayer
Buyer jurisdiction: U.S.
Seller jurisdiction: Cyprus

Precision Under Pressure: Insuring a Complex Tax Calculation

In a high-profile corporate separation, a buyer faced uncertainty around the accuracy of a large tax calculation stemming from a taxable spin-off.

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The seller’s team had estimated approximately $250 million in taxes due on the spin-off, with the buyer inheriting responsibility for any underpayment or overpayment after closing. Castle Harbour was engaged to transfer this gain variance risk to insurers. Working alongside Big Four accounting advisors who had conducted extensive basis and valuation studies, the team presented a compelling case to underwriters that the tax had been calculated correctly. A bespoke tax insurance policy was negotiated to cover any variance between the estimated tax and the actual amount ultimately owed. This solution gave the buyer comfort that an unexpected shortfall in the tax calculation would be indemnified, allowing the deal to close with certainty and no lingering exposure.

Policy type: Tax Insurance (Contingent Tax Risk)
Size: $1B+
Sector: Hospitality

Safeguarding a Tax-Free Spin-Off: Averting a Billion-Dollar Tax Exposure

A corporate client was undertaking a complex spin-off reorganization ahead of a major acquisition.

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The transaction was structured to qualify as a tax-free non-taxable spin-off, but if it failed to meet stringent tax requirements, it could have resulted in nearly $1 billion in combined taxes for the parties involved. Leveraging its deep tax and insurance expertise, Castle Harbour articulated the risk to underwriters and negotiated an innovative insurance solution. The team secured coverage for the client’s portion of the potential tax hit – hundreds of millions of dollars – at favorable terms. This approach mitigated the existential tax risk and gave the client the confidence to proceed, knowing that if the spin-off’s tax-free status were ever successfully challenged, the resulting liability would be covered.

Policy type: Tax Insurance (Contingent Tax Risk)
Size: $1B+
Sector: Hospitality

From Red Flag to Resolution: Insuring a Critical Tax Risk

During a high-paced multi-billion dollar M&A process - a material tax issue threatened to derail the deal: the A target’s valuable S-corporation status was at risk of being retroactively invalidated, which could trigger significant unforeseen tax liabilities.

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The team quickly identified the exposure during diligence and mobilized its internal tax specialists to assess the severity of the issue and structure a clear narrative for underwriters. Through close coordination with deal counsel, advisors, and insurance markets, we secured an insurance solution covering the identified S-corp qualification risk. By converting a potential deal-breaker into an insurable exposure, the brokers preserved full deal momentum and provided the buyer with critical protection and peace of mind.

Policy type: Tax Insurance (Buyer-Side)
Size: $500MM – $1B
Sector: Logistics

Advocacy in Action: Strategic Recovery After Major Revenue Loss

Following a post-closing contract loss, Castle Harbour led a strategic RWI claims process that secured over $8 million for a private equity client in under six months.

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Castle Harbour was engaged by a private equity client to place RWI for its acquisition of a technology services company. Following closing, the target’s largest customer—representing over 20% of revenue—unexpectedly terminated its contract. Although the seller had represented that customer relationships were stable, a post-closing review revealed that the seller had prior knowledge of the customer’s dissatisfaction and desire to terminate its relationship, constituting a breach of the material customer representation.

Castle Harbour immediately helped the client prepare a detailed notice of claim, aligning the narrative precisely with policy language, and assisted in gathering supporting evidence of both the customer loss and the seller’s awareness. We also proactively engaged the insurer early and positioned the claim strategically to encourage a favorable outcome, maintaining active dialogue throughout to avoid delays. As a result of Castle Harbour’s strategic claims management, the insurer promptly acknowledged coverage, and the client received a material payment exceeding $8 million—covering losses tied to the canceled contract. The matter was resolved within approximately six months of the initial notice, a significantly faster timeline than is typical for RWI claims, and with a highly favorable result that minimized the financial impact to the client.

Preserving Value: Overcoming Customer Retention Risk Through Adept Advocacy

Castle Harbour secured full RWI coverage for a financial sponsor despite a missing contract renewal with the target’s largest customer.

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Castle Harbour was engaged by a financial sponsor acquiring a business services company. A significant challenge emerged during diligence when it was discovered that the target’s largest U.S. contract lacked a fully executed renewal, raising concerns about customer retention generally and revenue stability post-closing.

Leveraging its experience in complex customer risk scenarios, Castle Harbour worked closely with the client and deal counsel to create a tailored diligence strategy designed to assuage underwriter concern and avoid an exclusion. By gathering targeted supplemental evidence of the customer relationship at issue, Castle Harbour engaged in effective advocacy with the RWI underwriters to provide full coverage for customer contracts without the need for any exclusion. This strategic advocacy preserved coverage for a material portion of the target’s enterprise value and enabled the buyer to proceed with confidence, maintaining deal terms without the need for renegotiation.

Policy type: Buyer-side RWI
Size: $500MM - $1B
Sector: Business Services

Buyer type: Financial Sponsor
Buyer jurisdiction: U.S.
Seller jurisdiction: U.S.

Strategic Advocacy: Overcoming Compliance Risks in a High-Stakes Acquisition

Castle Harbour helped a U.S. healthcare buyer secure broad RWI coverage in the face of a complex regulatory compliance issue involving a European medical device target.

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Castle Harbour was engaged by a U.S.-based healthcare company pursuing the acquisition of a European medical device manufacturer with operations across Switzerland and Germany. A major diligence hurdle emerged when the target disclosed an unresolved regulatory compliance issue related to clinical trial documentation—a risk that threatened to trigger future product liability claims and regulatory sanctions.

Recognizing the sensitivity and complexity of the exposure, Castle Harbour worked hand-in-hand with the client’s regulatory counsel to frame the issue appropriately for the insurance markets. By carefully isolating the nature of the exposure and demonstrating proactive remediation efforts by the target, Castle Harbour successfully negotiated extremely limited, rather than broad, exclusions with the RWI underwriters.  The result: the buyer obtained comprehensive policy coverage for the balance of the target’s operations, mitigating the most critical regulatory risk and maintaining full acquisition momentum despite late-stage diligence concerns.

Policy type: Buyer-side RWI
Size: $250MM - $500MM
Sector: Healthcare / Life Sciences

Buyer type: Strategic / Corporate
Buyer jurisdiction: U.S.
Seller jurisdiction: Switzerland

Overcoming Jurisdictional Hurdles to Deliver Seamless RWI Coverage

Castle Harbour enabled a strategic buyer to secure RWI coverage on a Dutch-law-governed acquisition by restructuring the deal to align with U.S. disclosure standards.

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Castle Harbour was engaged by a strategic buyer pursuing the acquisition of a cutting-edge technology and manufacturing company in The Netherlands. Despite the transaction being governed by Dutch law and structured under a European-style purchase agreement, Castle Harbour successfully secured an RWI policy—an uncommon feat in this context. 

Working in close coordination with the client and both U.S. and Dutch legal counsel, Castle Harbour led a strategic restructuring of the agreement to incorporate a U.S.-style disclosure framework acceptable to the RWI underwriter. This restructuring was essential to unlocking the broader protection offered by RWI, as compared to traditional European W&I policies. 

Leveraging its deep cross-border expertise and drawing on its significant M&A advocacy, Castle Harbour overcame initial skepticism from opposing counsel, who believed RWI was not viable under Dutch law. The result: a seamless insurance solution that enhanced deal certainty and protection for the buyer, on terms it was used to seeing in U.S.-based acquisitions.

Policy type: Buyer-side RWI
Size: $250MM - $500MM
Sector: Industrials

Buyer type: Strategic / Corporate
Buyer jurisdiction: U.S.
Seller jurisdiction: The Netherlands

Safeguarding RWI Coverage for Crucial IP Asset

Castle Harbour secured full RWI coverage for the acquisition of a pre-revenue AI company by resolving underwriter concerns over potential university IP claims tied to the company’s core technology.

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Castle Harbour advised a financial sponsor in securing full RWI coverage for the acquisition of a pre-revenue AI company, despite a major red flag in diligence. The underwriter initially proposed excluding coverage for the company’s core AI technology, citing concerns that it may be subject to university IP claims under a research agreement– given that the founders had developed it at a time they were serving as professors at the university.

Drawing on its experience dealing with similar academic IP frameworks and a strong relationships with the underwriter, Castle Harbour was able to analyze the operative provision in the research agreement and advise the buyer and its IP counsel on what additional diligence could be done in order to confirm that no university resources were in fact used by the founders in developing the IP. As a result of these efforts, the exclusion was removed, and the buyer retained full coverage on the company’s most valuable asset.

Policy type: Buyer-side RWI
Size: $500MM - $1B
Sector: Technology

Buyer type: Financial Sponsor
Buyer jurisdiction: U.S.
Seller jurisdiction: U.S.

From Red Flag to Resolution: Insuring a Critical Tax Risk

Castle Harbour helped preserve deal momentum by identifying and insuring a material tax risk that threatened the target’s S-corporation status, avoiding retroactive tax liabilities.

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Castle Harbour was engaged on a transaction where a material tax issue threatened to derail the deal: the target company’s tax efficient S-corporation status was at risk of being retroactively invalidated, potentially triggering significant unforeseen tax liabilities. Castle Harbour quickly identified the exposure during diligence and mobilized its internal tax specialists to assess the severity and structure a clear narrative for underwriters.

Through a coordinated effort with counsel, advisors, and Tax Insurance markets, tax insurance was successfully placed on the identified tax risk. By converting a potential deal-breaker into an insurable exposure, Castle Harbour preserved full deal momentum and provided the buyer with critical protection and peace of mind.

Policy type: Buyer-side RWI
Size: $500MM - $1B
Sector: Logistics

Buyer type: Financial Sponsor
Buyer jurisdiction: U.S.
Seller jurisdiction: U.S.