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Certain dealers that utilize offshore re-insurance companies may be absolved from having to report investments on such companies on Form 8938, Statement of Specified Foreign Assets, according to IRS notice 2013-69.

Good News for Dealerships With Offshore Re-Insurance Companies

  • 12/19/2013

Good News for Dealerships With Offshore Re-Insurance Companies

Certain dealers that utilize offshore re-insurance companies may be absolved from having to report investments in such companies on Form 8938, Statement of Specified Foreign Assets, according to IRS Notice 2013-69. Previously, Form 8938 had to be included with your personal income tax return.

This 50-page notice covers foreign financial institutions and the related withholding requirements. It includes informal guidance stating that foreign insurance companies making Section 953(d) elections are now considered U.S. taxpayers and therefore are not subjected to Form 8938 reporting requirements from this point forward.

Although this is a tax notice, and is not considered a formal part of the Internal Revenue Code or IRS regulations, based on discussions with the IRS Office of Chief Counsel's International Division, we can rely on this notice. They indicate formal changes in the regulations will be forthcoming.

“Based on our review of this notice, and discussion with the IRS Chief Counsel’s Office, there is no need to file a Form 8938 if you have controlled foreign corporation (CFC) insurance companies located offshore, and these companies have made Section 953(d) elections to be treated as U.S. taxpayers,” says Dave Wiggins, a dealership principal with CliftonLarsonAllen.

How to know if the election has been made

An easy way to know if your re-insurance company has made this election is to determine if you, as the owner of the re-insurance company, are filing a Form 1120-PC for the company. This is a U.S. Property and Casualty Insurance Tax return. If you are filing this return, you will not be required to report on a Form 8938.

“Many of our clients will be relieved to know they do not need to be gathering this information going forward. It will also alleviate many taxpayers’ concern that this form may have been a 'red flag' subjecting them to possible scrutiny from the IRS,” says Wiggins.

Noncontrolled foreign corporations must file

Noncontrolled foreign corporations (NCFCs) are still required to file Form 8938, as they have been since 2011. Any CFC that does not make a 953(d) election would still be required to file. However, these situations are rare.

“This will effectively terminate the Form 8938 filing requirements for all of our dealership clients other than those larger clients that are part of NCFC companies,” says Wiggins.

The IRS plans to revise Regulation 1.1471-1(b)(132) by year-end.

How we can help

Our dealership professionals can review your re-insurance company structures to determine what reporting (if any) should be done. We will document the proper filing requirements and determine if Section 953(d) elections have been made. If Form 8938 is necessary, we can work with your re-insurance administrators to gather the needed information and prepare the correct forms.