- The Related Finance Company (RFC) was established in the late 1980s as a result of changes in US Tax Code.
- The bottom line: After 1987, BHPH dealers were forced to recognize taxable income before they received the cash for that income.
- Organizing the BHPH operation into two corporations, the used car lot and finance company solve for the disallowance of bad debt reserves and the installment sale method as presented in the 1986 Tax Reform Act (IRC §166) and 1987 Omnibus Budget Reconciliation Act (IRC §453).
- By creating an RFC, both disallowances are overcome because a dealer deduction is made at the time of the sale [to reduce Gross Profit] for the percent of the receivable anticipated to be written off, and the finance company recognizes a ratable portion of the discount as income while it collects the cash.
- By using a truly integrated solution such as Deal Pack, the buying & selling of notes, collection of payments and discounts and revenue recognition are achieved transparently, in real time, without switching between programs.
Related Finance Company
Maximize the tax benefits of the RFC with a fully integrated system that transfers the receivables and properly records all accounting activity in real time.