Blue Cross & Blue Shield of Texas, Inc. and Subsidiaries - Page 13




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            rule of OBRA 1990, section 11305(c)(3), 104 Stat. 1388-452 (the                            
            special deduction rule), provided as follows:                                              

                        Treatment of companies which took into account                                 
                  salvage recoverable.–-In the case of any insurance                                   
                  company which took into account salvage recoverable in                               
                  determining losses incurred for its last taxable year                                
                  beginning before January 1, 1990, 87 percent of the                                  
                  discounted amount of estimated salvage recoverable as of                             
                  the close of such last taxable year shall be allowed as                              
                  a deduction ratably over its 1st 4 taxable years                                     
                  beginning after December 31, 1989.                                                   

                  For 1990 through 1993, Blue Cross timely filed consolidated                          
            U.S. Corporation income tax returns.  Blue Cross calculated that                           
            under the special deduction rule a total of $70,950,582 reflected                          
            Blue Cross' estimated salvage recoverable relating to incurred                             
            but unpaid losses for its last taxable year beginning before                               
            January 1, 1990.  Accordingly, Blue Cross multiplied the total                             
            $70,950,582 by 87 percent and by a discount factor of                                      
            approximately 4 percent, to produce a figure of $59,352,862, and                           
            Blue Cross deducted one fourth of the $59,352,862, or                                      
            $14,838,215, for each of the years 1990 through 1993 as its                                
            special deduction.                                                                         
                  On audit for years 1992 and 1993, respondent disallowed each                         
            of Blue Cross' claimed $14,838,215 special deductions.1                                    




            1    The evidence does not indicate respondent's treatment of the                          
            special deductions claimed by Blue Cross on its 1990 and 1991                              
            Federal corporation income tax returns.                                                    




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