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deposit into the Trust securities in the amount approximately
equal to the negative EAB.
The 1989 Agreement did not extend a carryover period for tax
purposes. It did not eliminate the SRLY taint of a previous net
operating loss for petitioner. It did not change the character
of an item of income or deduction for petitioner from ordinary to
capital or capital to ordinary. It did not change the source of
an item of income or deduction for petitioner from domestic to
foreign or foreign to domestic. It did not artificially reduce
petitioner's equity or result in any deferral of income to
Guardian.
Petitioner’s Federal marginal income tax rate for its 1989
taxable year was approximately 16 percent. Petitioner’s Federal
marginal income tax rate for the taxable years 1990 through 1992
was approximately 18 percent. During each of these years,
Guardian was taxed at the full corporate income tax rate,
including a significant equity tax under section 809.
b. Amendments
The 1989 Agreement was amended three times. The first
amendment, completed on July 17, 1990, to be effective as of
June 30, 1989, eliminated the experience refund provision, and
increased the risk fee from .25 percent per quarter to .3 percent
per quarter of the absolute value of the EAB. The amount of the
risk fee was within the range of risk fees normally payable by
reinsurers to retrocessionaires such as petitioner. The 1989
Agreement originally contained an experience refund provision,
pursuant to which petitioner agreed to refund to Guardian
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