Contact
973.318.9600
info@urchoicedealers.com
Highlights of Profit Participation
Controlled Foreign Corporation (CFC)
- The most common structure in the marketplace
- Dealer owns it – no pooling with other dealerships’ F&I business
- Formed as a “c” Corp – dealer chooses the company name, directors, officers, and shareholders
- IRC Section 953(d) election – treated as a domestic insurance company under the IRC
- US tax returns and annual statements are completed each year
- Assets/cash are normally held in trust at a US bank (money never leaves the US)
- Dealer/owner flexibility: dividends, loans, surplus investments
- Long-term business strategy for dealers seeking more control in directing their investment strategy
- Offers more control in directing investment strategy
- Capability to reinsure major product lines
Non-Controlled Foreign Corporation (NCFC)
- Ownership is represented by purchasing preferred, non-voting stock
- No annual premium thresholds
- Tax returns and annual statements are not reported to the IRS
- Not subject to federal income tax
- Passive Foreign Investment Company (PFIC) exemption*
- Long-term business strategy for dealers seeking the highest potential return
- Multiple owners provide risk-sharing and risk-distribution
- Capability to reinsure major product lines
- Exotic stock structure segregates profits by producer
- A larger asset base yields larger investment options
*Quantitative threshold test requires the insurance company to qualify as an insurance company under IRS code and have liabilities which are more than 25% of the total assets of the company (F&I unearned premium reserves do not count as liabilities). This “test” was part of the 2017 Tax Cuts and Jobs Act.
- Dealer Owned Warranty Company registers as a service contract provider in the states it will do business in
- The tax-deferred nature of a DOWC allows the dealer to take advantage of the same tax laws that insurance companies have been operating under for decades
- The company has no taxable income for an extended period of time as a result of numerous expenses: administration and acquisition costs in the current tax year; net operating losses are carried forward
- Easy to manage and, most importantly, prosper from
- Underwriting profits and investment income are retained solely by the dealer’s DOWC
- 100% control over their F&I program, including rates, coverages, marketing materials, and the company name
- Dealers can build a portfolio of products that caters to a variety of vehicles and consumer needs
- Underwriting profits and investment income are retained solely by the dealer’s DOWC
- The structure allows dealers to stay onshore and benefit from domestic formation that can provide significant cash flow
- You can also borrow for virtually any purpose
- The dealer manages the reserve, providing immediate cash flow and investment opportunities.
- Dealer decides how to use the cash
- Tax due on cash flow, not on profits
- Dealer is responsible for any future claims liability
- Superior loss control with advanced administrative capabilities
- Our exceptional claims administration, supported by our robust claims infrastructure, ensures customer satisfaction
- Accepted by most major manufacturers and financial institutions
- Also available for recreational vehicles, motorcycles, and powersports vehicles
- No upfront money to participate
- Potential for additional profit with no downside risk
- Program risk completely separate from the dealer’s balance sheet
- Potential underwriting revenue
- Potential investment income
- Dealer receives a quarterly activity statement
- Profit distribution is paid annually
- Generate upwards of 70% customer retention by offering a lease program
- Customize your program to fit your clientele and sales preference. Cater towards front-end or back-end profits. Target
prime, near prime, or sub-prime clientele - A new stream of revenue for the dealership that is safe and turnkey. We provide underwriting and loan servicing with
expertise from auto finance industry veterans - Maintain the customer data and control rather than sending it to your lenders
- Residual Risk Management – third party first dollar Residual Value Insurance
- Inventory Management – Always have a line of sight of cars coming off lease – this allows you to maintain your used car
inventory pipeline and forget worrying about shortages or auction fees - Flexible Lender Management -As interest rates continue to rise and lenders tighten up your lending revenue helps
increase your profits during tight credit periods