United States District Court, D. Columbia
For VALIDUS REINSURANCE, LTD., Plaintiff: Joseph Robert Guerra, LEAD ATTORNEY, SIDLEY AUSTIN LLP, Washington, DC.
For UNITED STATES OF AMERICA, Defendant: Anne E. Oliver, Norah Elizabeth Bringer, LEAD ATTORNEYS, U.S. DEPARTMENT OF JUSTICE, Tax Division, Washington, DC.
AMY BERMAN JACKSON, United States District Judge.
Plaintiff Validus Reinsurance, Ltd. filed this case against defendant United States of America, alleging that the Internal Revenue Service (" the Service" ) improperly assessed and collected excise taxes on plaintiff's foreign retrocession transactions pursuant to 26 U.S.C. § 4371 (2012). Plaintiff seeks to recover the full amount of the excise tax and related interest that it paid in connection with the challenged 2006 tax assessment. Compl. at 5 [Dkt. # 1].
The material facts in this case are undisputed, and the parties filed two joint statements of undisputed material facts. Joint Statement of Undisputed Material Facts (" 1st Joint SOF" ) [Dkt. # 15-1]; Addendum to Joint Statement of Undisputed Material Facts (" 2d Joint SOF" ) [Dkt. # 17-1]. Both parties also filed cross-motions for summary judgment. Pl.'s Mot. for Summ. J. [Dkt. # 15]; Def.'s Cross-Mot. for Summ. J. [Dkt. # 17]. Because the Court finds that the excise tax assessed was not authorized by the statute, it will grant plaintiff's motion for summary judgment,
and it will therefore deny defendant's cross-motion for summary judgment.
I. Statutory Background
This case involves the taxation of a particular type of insurance transaction. In a direct insurance transaction, a person or entity contracts with an insurance company to receive protection against casualty loss or to obtain life insurance coverage. A reinsurance transaction occurs when the insurance company that directly insured the person or entity buys insurance from another insurance company (" the reinsurer" ) to cover the risks associated with the direct insurance policy. In other words, reinsurance is insurance for insurance companies, and it covers an insurer in the event it is required to pay out funds under one or more of the direct insurance policies that it has issued.
A third type of insurance transaction - and the one that serves as the basis for the challenged excise tax in this case - is called a retrocession. A retrocession is a form of reinsurance one more step removed from the original direct insurance policy: it occurs when a reinsurer buys insurance from yet another insurance company (" a retrocessionaire" ) to protect the reinsurer in the event it is required to pay claims under one or more of the reinsurance policies that it has issued to the direct insurers.
Section 4371 of title 26 of the U.S. Code aims to tax insurance transactions involving policies issued by foreign insurers or reinsurers. 26 U.S.C. § 4371. Specifically, section 4371 provides:
There is hereby imposed, on each policy of insurance . . . or policy of reinsurance issued by any foreign insurer or reinsurer, a tax at the following rates:
(1) Casualty insurance and indemnity bonds.--4 cents on each dollar, or fractional part thereof, of the premium paid on the policy of casualty insurance or the indemnity bond, if issued to or for, or in ...