IRS scrutiny of insurance premium deductions and a pending case involving Intel subsidiary Altera are among the many legal issues tax practitioners will keep an eye on in 2019.

Practitioners also are tracking a series of expected challenges to the Internal Revenue Service’s authority to impose penalties.

Bloomberg Tax asked tax attorneys with a wide range of specialties what they expect the new year will bring. Here are the legal issues to watch in 2019.

Captive Insurance

The IRS has always been watchful of how companies insure themselves, but it may be taking a harder stand in 2019, Fred Murray, director of the University of Florida’s graduate tax program, said.

Captive insurance—where a company creates a subsidiary to insure itself—has drawn scrutiny from the IRS because it can be a way for parent companies to generate tax benefits by moving money to its subsidiaries in the name of insurance premiums.

After the IRS completes its audit, the U.S Tax Court evaluates whether the insurance agreement between the parent company and its subsidiary is valid.

“There are a number of these that the IRS is looking at and about a dozen of these cases are pending in the Tax Court right now,” Murray told Bloomberg Tax. “It’s a question of whether the Tax Court respects the tax benefits of the transaction after determining if it is valid.”

The Tax Court’s June decision in Reserve Mechanical Corp. v. Commissioner could be appealed, Timothy L. Jacobs, a partner with Hunton Andrews Kurth LLP in Washington, told Bloomberg Tax.

If appealed, Jacobs said, it would be the first captive insurance case to make it to the circuit courts.

The case involved an international corporation that opted to be treated as a tax-exempt domestic insurance company. The Tax Court rejected that position because Reserve Mechanical Corp. didn’t issue insurance contracts or receive more than 50 percent of gross receipts from premiums.

Waiting for Altera

One of 2019’s tax cases to watch was decided in the summer of 2018—until it wasn’t.

Practitioners and Silicon valley tech firms are still waiting for the U.S. Court of Appeals for the Ninth Circuit’s ruling in Altera Corp. v. Commissioner. A ruling in favor of the IRS could lead to higher tax bills for Ebay Inc., Tesla Inc., and other companies.

A central question in the case turns on how domestic companies share expenses with their offshore units. Altera is challenging an IRS ruling that it is required to share the expenses of its employees’ stock-based compensation with its Cayman Islands subsidiary.

The court ruled in the government’s favor in July, but withdrew the opinion a few weeks later because one of the judges who heard argument—Judge Stephen Roy Reinhardt—died before the opinion was issued. The case was re-argued in October.

“I think people will certainly be watching Altera and how that comes out,” Jacobs said.

The Altera ruling isn’t just a transfer pricing case, Jacobs said. It also touches on issues under the Administrative Procedure Act, which established requirements that federal agencies must follow when issuing regulations.

Altera argued that the IRS violated that law by ignoring stakeholder testimony when it created its 2003 cost-sharing rules. Companies had told the agency that unrelated parties don’t share the costs of stock-based compensation.

If the court sides with Altera, the comment period will be increasingly more important to the rulemaking process, Jacobs said.

‘Graev’ Concerns

Challenges to IRS penalty authority is another issue to watch in 2019.

“One thing we are going to continue to see a lot of is cases talking about whether the IRS appropriately received managerial approval for penalties,” said Guinevere Moore, a partner at Johnson Moore in Chicago.

Section 6751(b) of the U.S. Tax Code requires that no penalty be assessed “unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination.”

This code section was litigated in two frequently cited tax cases—Graev v. Commissioner and Chai v. Commissioner. The Graev and Chai cases determined that the agency bears the burden of providing evidence of written approval for initial penalty determinations.

Graev and Chai have created a whole new subset of cases where the taxpayer and the government are figuring out how these cases are working their way through the system,” Moore said.

Disclosure Penalties

There are also a series of cases that deal with the way IRS calculates penalties against taxpayers who fail to file required annual reports on foreign financial accounts.

The cases revolve around whether the IRS can asses penalties at 50 percent of the value of the account at the time of the violation or if penalties should be capped at $100,000, Megan Brackney, a partner at Kostelanetz & Fink LLP in New York, said.

The IRS did prevail in one recent case on the issue: the U.S. Court of Federal Claims’ June ruling in Norman v. United States. But the government in 2018 lost in two other cases at the district court level: United States v. Colliot and United States v. Wadhan.

The taxpayers argued in Colliot and Wadhan that the government is bound Treasury’s regulation, which listed the penalty as a maximum of $100,000 dollars.

The government will likely appeal those two cases, Brackney said.

If the government loses it’s going to be an issue “because they’ve been assessing penalties and prevailing in litigation against people” for penalties of 50 percent of the accounts, rather than the $100,000 said Brackney. People who have been assessed millions in penalties are likely to be upset and pursue litigation if that happens, she said.