Tax benefit insurance is raising questions in California.

The state franchise tax board issued subpoenas in June to two insurance carriers for all communications the insurers have had with California companies trying to buy tax benefit insurance. The carriers sell insurance policies that protect against the loss of certain tax benefits in corporate transactions.

Meanwhile, a bill introduced in the state assembly in June would declare tax benefit insurance null and void to the extent issued for a transaction that lacks economic substance. It would require the insurer to return the premium. It would also tax away as a penalty 75% of the proceeds received by a taxpayer “from insurance, guarantees, stop loss agreements, or other similar arrangements” in transactions that lack economic substance.

Keith Martin