Issue No. 7 | May 19, 2026

Intelligence for F&I agents, administrators, and dealership finance professionals.

THE NUMBER: $2.9M

$2.9 million is the 2026 IRC §831(b) annual premium volume threshold, up $50,000 from the 2025 limit of $2.85M, per IRS Rev. Proc. 2025-32. A Dealer Owned Warranty Company with annual premium volume below that level can elect small P&C company treatment under 831(b), meaning the entity is taxed only on investment income. Underwriting income is not taxed at the entity level. Above the threshold, the DOWC files as a regular P&C company under 831(a) and underwriting income becomes taxable. The threshold is indexed upward annually in $50,000 increments. For any dealer evaluating the DOWC structure, that number materially changes the economics of the structure.

The five F&I participation structures run from walkaway commissions to DOWCs, and each answers four questions: how much risk does the dealer take on, how much of the underwriting result do they keep, when is profit realized, and how much control do they have. The 831(b) election is part of what can make the DOWC economics more favorable at the right premium volume. It is also why a program near the $2.9M threshold requires more precise modeling than one comfortably inside either tax regime.

THE F&I ANGLE

The structure your program operates within determines whether F&I profit is immediate income or developing capital. At the DOWC level, tax treatment is part of that calculation.

Walkaway and bonus programs generate income at the point of sale. Profit sharing introduces participation tied to underwriting performance. Reinsurance adds earned premium, expenses, claims, and investment income to the picture. A DOWC takes that further: the dealer-formed C-corporation is the obligor, responsible for fulfilling the service contract and paying claims. Under 831(b) treatment, investment income is taxed and underwriting income is not, which materially changes the after-tax distribution profile compared to a regular P&C entity. Small changes in claims severity or cancellation timing compound across cohorts and affect both current-period earnings and the reserve assumptions applied to future cohorts.

The strongest programs in this industry focus less on selecting the structure and more on understanding performance within it. That means knowing where annual premium volume sits relative to the §831(b) threshold, how claims develop across cohorts, and what reserve adequacy looks like at the obligor level. The economic advantage of a DOWC is real. It is also contingent on the operational discipline to capture it.

FROM THE BLOG

Primer on Dealer Participation Programs and F&I Reinsurance

THE DESK STAT

$2.9 million is the 2026 §831(b) threshold that determines whether your DOWC is taxed as a small P&C company or a regular P&C company, per IRS Rev. Proc. 2025-32. Below it, underwriting income is not taxed at the entity level. Which side of that line is your program on?

Until next Tuesday —

Reply here and tell me which participation structure your program is currently in. If you are not sure, that is the right starting point. We can walk through the structure and what it means for your participation economics in 20 minutes.