Tax Court OKs Deducting Payments To RAC Insurer

By Jonathan Randles (January 14, 2014, 9:48 PM EST) -- A divided U.S. Tax Court ruled Tuesday that Rent-A-Center Inc.'s subsidiaries are allowed to deduct payments made to the company's wholly owned insurance unit.

In a split decision, the Tax Court found that policies issued by RAC's captive insurer, Legacy Insurance Co. Ltd., is a genuine insurance business that shifted risk between the company's numerous retail units. That determination is what allows RAC's subsidiaries to write off payments to Legacy.

The majority rejected the IRS' claim that Legacy is a sham entity created primarily as a tax shelter for RAC. The agency alleged RAC — the largest rent-to-own company in the...

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