Beneficial Corp.'s first-quarter earnings were broadsided by a dispute with the Internal Revenue Service over a loan program backed by tax refunds.

Wilmington, Del.-based Beneficial posted net income of $20.7 million, down a whopping 66% from last year's first quarter.

The $14 billion-asset finance company said it took a $65 million pretax charge to cover its "best current estimate of possible losses from the tax refund anticipation loan business in 1995. Net of tax offsets, this amounts to a loss of approximately $39 million."

Since 1987, Beneficial has made short-term loans to individuals based on expected federal tax refunds. When the refunds were paid out, the money went directly to Beneficial from the IRS.

But this year, the IRS, complaining of widespread fraud in its earned income tax credit program, held up refunds for review and then mailed payments to taxpayers instead of to the company.

"Although initial collection efforts on the over $313 million of receivables affected by the IRS action have been encouraging, with nearly $169 million, or almost 54%, already collected to date, these results are not yet definitive as to the full-year outcome," warned Finn M.W. Caspersen, Beneficial's chairman and chief executive.

Indeed, Jennifer Scutti, an analyst with Prudential Securities Research, said, "Management thinks it took the most conservative approach possible. However, they did say they may need to take a charge in the second quarter as well." Ms. Scutti responded by revising her full-year earnings estimates downward on Tuesday. She now expects Beneficial to earn $3.55 per share in 1995, rather than $4.10.

However, all those who follow the company said its fundamentals remain strong. "They've had very good receivables growth for the past year, which continued in the first quarter," said David Hochstim of Bear, Stearns & Co. "They also showed some improvement in operating efficiency. Their expenses to managed receivables were 7.31% a year ago and were 6.85% in the first quarter," excluding $10 million in extra costs from the tax refund program.

Katrina Blecher of Gruntal & Co. agreed. "It was a solid quarter," she said. "Receivables were up 16%. Credit quality was good. The net interest margin was down, but it was still over 9%, which, compared to some banks, is exceptional."

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