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