CCIA URGES IRS SUSPEND AND REEXAMINE CREDIT REINSURANCE TAX TEST

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Contact: William F. Burfeind
Executive Vice President
(312) 939-2242

Chicago, May 7, 2008 - The Internal Revenue Service should suspend and reevaluate the inappropriate basis it is applying for the tax treatment of credit insurance reinsurance arrangements and should open a dialogue with the consumer credit insurance industry to establish meaningful compliance standards for credit reinsurance, the leading credit insurance trade organization said today.

The Consumer Credit Industry Association (CCIA) released a White Paper analyzing what has been named the “Dashboard” transfer pricing analysis. Developed for the IRS by economist Dr. Alan Shapiro, the CCIA White Paper declares the Dashboard misunderstands that credit reinsurance pricing is driven by market factors and regulatory limitations and in no way depends on collusive interaction between credit insurance writers and producers.

The 32-page White Paper has been approved by the CCIA Board of Directors, said CCIA Executive Vice President William F. Burfeind, who commented, “The paper is a precise and detailed examination of credit insurance, credit insurance regulation, the relationships between credit insurers and producers and the relationship each of them have to reinsurers.”

Burfeind said, “Under Section 482 of the Internal Revenue Code, the IRS takes an approach that treats transactions between credit insurance writers and producers with credit insurance reinsurers as less than independent arms-lengths transactions when in fact they are and should be so treated on a tax basis. The White Paper establishes that these are indeed arms-length transactions within a highly regulated insurance sector and that the profits of reinsurers should not be attributed to credit insurance producers.”

In its conclusion, the White Paper expresses the willingness and commitment of the industry to keep open the lines of communication with the IRS and to engage in a constructive dialogue with the service regarding compliance procedures and techniques.

However, the White Paper declares, “The industry is not convinced that the IRS has used the proper tests to make its transfer pricing analysis,” contending the Dashboard analysis sidesteps crucial elements, uses an inappropriate database to derive the necessary test of arms-length transactions, and requires taxpayers to forecast results that will be based on data that will be at least a year behind the forecast period.


In the paper the CCIA explains, “Reinsurance structures involving producers, direct writers and reinsurers are used in the consumer credit insurance industry because they make good business sense for each of the parties. The contractual foundations of the reinsurance arrangements are between parties that are unrelated.” It declares, “More importantly, they are negotiated at arm’s length for market driven reasons. They are not tax-motivated.”

For these reasons the industry calls on the IRS to consider a project to reconsider the matter, re-evaluate the Dashboard methodology and to suspend its use during the reexamination.

Credit insurance and related debt cancellation products insure or otherwise provide for the repayment of debt in the event of an insured event like the death, disability or unemployment of the borrower or the loss of property purchased from the proceeds of an insurance loan.

Based in Chicago, the 120-member CCIA is a trade association of insurance companies and other financial service providers selling or servicing consumer credit insurance, credit related lines of insurance, and other consumer credit protection products including debt cancellation and suspension contracts or agreements.
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