top of page

Dealer Wealth Programs

Having control is crucial when it comes to your dealership's F&I products. A profit-sharing program can put you in the driver's seat, giving you the power to make decisions that are best for your customers and your business. If you're looking to take control of your F&I products, we can help. Our focus is on creating products that match your dealership's specific needs, all while leveraging industry-leading, tax-friendly profit-sharing programs.

Profit Sharing Programs 

  • Controlled Foreign Corporation (CFC): A corporation domiciled in an offshore country but taxed as a U.S. company. This type of corporation allows for investment flexibility, loans against investments, and funds can be used for various purposes.

  • Dealer Owned Warranty Company (DOWC): An administrative corporation designed to be the obligor for non-insurance F&I products. This type of corporation is owned by a dealership or dealer group and administered by a third-party provider.

  • Noncontrolled Foreign Corporation (NCFC): A corporation where funds are domiciled in an offshore country and claims are paid out of it. This type of corporation offers the least investment flexibility but provides the lowest risk and lowest returns.

Retro Profit Sharing Program

These are profit-sharing agreements between you and the administrator in relation to the sale of F&I products. Profits are paid at defined intervals based on how well your portfolio performs.

Retro Programs allow you to participate in the underwriting profits of the business you write. Typically, the percentage of shared profits will increase as the volume of your dealership business increases.

Dealer Owned Warranty Company

DOWC Benefits:

  • Domestic U.S. C-Corp formation.

  • Stand-alone warranty company.

  • Open an account with almost any U.S. bank.

  • No 8886 – form Filing is needed. (Reportable Transaction Form)

  • No 8938 – form filing is needed. (Foreign Financial Assets Form)

  • No foreign domicile fees.

  • No 953 (d) re-domestication election necessary.

  • Possible access to unearned cash. (Loan against unearned premium reserves)

  • Potential for greater investment income based on higher return investments. (Higher risk)

DOWC Tax Difference:

  • Most DOWCs utilize retail-cost accounting, which recognizes the retail cost of the VSC as premium, and expenses dealer commissions and administrative fees up front, which generates a large tax loss for the first 5-7 years of the program.

  • DOWC stand-alone warranty company typically does not make IRC Section 831(b) election until it is placed in runoff status, and this is assuming the new program is not part of a controlled group with runoff DOWC.

  • DOWC stand-alone warranty company files both state and federal income tax returns, with no premium tax paid.

  • DOWC stand-alone warranty company federal taxation is as a P&C insurance company. (TAM 9601001)

  • DOWC stand-alone warranty company pays state taxation, which will vary, but most states start with federal taxable income and adjust for various items, except for California.

  • DOWC is a domestic stand-alone warranty/insurance company whose revenue meets the IRS requirements for an insurance company.

  • DOWCs file a 1120-PC and are only taxed on a prorated amount of earned premiums.

  • Within the DOWC structure, the F&I department’s profits/commissions are a written off as an expense, creating a long-term net operating loss (NOL) carry forward. As a result, the DOWC enjoys deferred tax liability for years.

DOWC Advantages:

  • Potential for higher profit margins base on retail cost accounting method.

  • Risk is limited to the initial capital invested. ($50,000-$500,000 FL)

  • DOWC is usually tax deferred for the first 5-7 years of the program due to retail cost accounting.

  • Dealer controls funds, although, backend insurance may require some funds to be invested in trust for expected claims.

  • Potential for deferral of taxation to shareholders.

DOWC Disadvantages:

  • DOWC stand-alone warranty company is a more dealer-involved, hands-on and labor-intensive program.

  • Much higher initial capital requirement than the CFC, and this investment is at risk.

  • Limited to non-insurance products – no ability to add insurance products that require reinsurance.

  • Earnings are subject to additional layer of taxation.

  • Regular P&C company taxation may be excessive.

  • May require additional capital investment from the dealer based on losses.

  • Significantly greater ongoing operating costs.

  • Greater IRS scrutiny of captive programs. (IRS Notice 2016-66)

  • Additional regulatory requirements.

  • May have limited ownership rights of the next formation. (May be limited to 50%)

  • Midyear transitions with greater than 2.3 million ceded premiums may create ownership issues for the next formation. (Retail cost accounting plays into the concern)

  • Potential negative tax status once the initial tax loss is exhausted.

  • Program may have hidden costs if the dealer decides to change administrators.

  • No portability of the program.

  • Limited life span of the program.

  • Uncertain exit strategy, when leaving the program and moving to the next strategy.


CFC Reinsurance

  • Administrator Obligor (AO) or Dealer Obligor (DO) options.

  • Virtually no initial capital requirement is necessary.

  • Low liability.

  • Domicile of economic convenience for insurance product flexibility.

  • US Tax Payor. (953(d) election status)

  • Programs qualify for preferential tax treatment.

  • Shareholders are not taxed until distributions are declared.

  • Money remains in the country in a U.S. bank that is usually FDIC insured.

  • TPA involvement – loss controls, fraud protection, professional guidance with professional cession review, investments and loans. Total global wealth management.

  • First dollar loss insurance CLIP/stop loss Insurance.

  • Professional Investment advisors that are vetted and capable of working in the reinsurance space and are familiar with the statutory and trust requirements.

  • Dealers may self-direct investment strategies within the trust guidelines.

  • In some cases, the dealer may borrow unearned premiums in lieu of profit distributions.

  • Reserve guidelines to protect the dealer from insolvency.

  • Very few product restrictions.

  • No restrictions to work with specialty partners.

  • Program portability.

  • No exit strategy issues.

bottom of page