Tax Update Alert Offshore Reinsurance Companies


By Kathleen Petrucci

On February 20, 2014, the IRS issued the latest set of regulations to clarify and amend the Foreign Account Tax Compliance Act (FATCA) final regulations that were issued in January 2013. FATCA was enacted in 2010 by Congress to target U.S. taxpayers using foreign accounts to evade taxes. Many of the latest changes were introduced in an IRS Notice, which was released late last year.

Of importance to auto dealers is the favorable amendment to the definition of “U.S. person” to include a foreign insurance company that has made an election under 953(d) and that is not a specified insurance company.

Many auto dealers have reinsurance companies to boost their profits on vehicle service contracts and other F&I products. These reinsurance companies are typically formed offshore but elect to be taxed domestically on Form 1120-PC, U.S. Property and Casualty Insurance Company Tax Return. Although these companies are taxed as U.S. entities, they were still considered foreign entities under the final FATCA regulations issued last January. As such, their owners were required to file Form 8938, Statement of Specified Foreign Financial Assets, with their personal tax returns for 2011 and 2012 if a certain threshold was met.

This amendment to the definition of a U.S. person will now exclude virtually all 953(d) foreign insurance companies used for F&I purposes from the FATCA reporting requirements.

Please note that the FATCA rules will continue to apply to foreign insurance companies that do not make the 953(d) election. These companies are typically termed Noncontrolled Foreign Corporations (NCFCs). Although not as common for an auto dealer as a 953(d) foreign insurance company, they do exist for many.

If you have a foreign insurance company and have any questions regarding the 953(d) election, NCFCs, or the FATCA rules in general, please contact our office for assistance.

Kathy Donahue Petrucci, Tax Shareholder, Schneider Downs and Co., Inckpetrucci@schneiderdowns.com; 614 586-7214

© 2014 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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