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Trial Held in RVI Case

Gavel i stock 500(1)
September 25, 2014
By P. Bruce Wright and M. Kristan Rizzolo

Beginning on September 2, a 3-day trial was held at the U.S. Tax Court in the case of RVI Guaranty Co. Ltd. and Subsidiaries v. Commissioner. The issue in the case is whether residual value insurance, which insures lessors against an unexpected loss in the value of property they lease, qualifies as insurance for federal tax purposes.

The taxpayer argued that its residual value insurance policies meet all three prongs of the tax definition of insurance because (1) they constitute insurance in the commonly accepted sense, (2) they shift risk that is distributed among many insureds, and (3) they cover insurance risk. The Internal Revenue Service (IRS) contended that the taxpayer's residual value insurance policies fail all three prongs.

The trial was held before Judge Albert G. Lauber, who wrote one of the dissenting opinions in the Rent-a-Center case. Because the facts in the case were largely stipulated, neither party put on any fact witnesses. Each party presented three expert witnesses with different areas of expertise, including insurance theory, actuarial science, and statutory accounting. The experts' written reports served as their direct testimony, leading to a trial that consisted largely of cross-examination of the parties' experts. Once the trial was complete, Judge Lauber summed up his impressions of the issues and gave the parties some guidance on what the post-trial briefs should address. The opening briefs of both the taxpayer and the IRS are due on December 3, and reply briefs are due on February 2, 2015.

P. Bruce Wright and M. Kristan Rizzolo are both partners at Sutherland Asbill & Brennan LLP. Mr. Wright serves in the New York office; Ms. Rizzolo in the Washington, D.C., office.
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