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SouthwestRe Bulletin:
PORC's No Longer Listed Transactions
IRS Notice 2004-65
The Internal Revenue Service, in a welcome move last Friday, released IRS Notice 2004-65, rescinding the Tax Shelter Reporting Requirements of Producer Owned Reinsurance Companies (i.e. PORC's) by IRS Notice 2002-70. This rescission of the reporting requirements was as unexpected as was the initial announcement of the reporting requirements. The IRS released the following comments in announcing the rescission of the reporting requirements:
"Based on disclosures by taxpayers and examination of tax returns, we have determined problems associated with these transactions are not as prevalent as initially believed. Accordingly, we are no longer classifying them as listed transactions," said IRS Commissioner Mark W. Everson. "We will continue to scrutinize PORC arrangements through the normal audit process, particularly those with pricing issues."
The above comments reflect what this industry hoped the Internal Revenue Service would find in their review of reinsurance transactions with small reinsurance companies, specifically that small reinsurance companies are not listed transactions. Consequently, we believe they continue to represent a viable option for insurance producers to realize maximum underwriting profits and investment income.
We will be providing a more thorough analysis of the implications of this announcement in the coming weeks, but as of now this organization is very pleased with the issuance of this Notice, the potential elimination of the concomitant reporting requirements, and the favorable findings on Producer Owned Reinsurance Companies as a whole.
In addition to this announcement, we are also including the following documents:
IRS Overview of Notice 2004-64 and 2004-65
IRS Notice 2004-65
IRS Notice 2004-64
We welcome any questions or comments. Please use the return email address for your convenience.
Sincerely,
James B. Smith, CEO
jim@reinsure.com
www.reinsure.com