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testimony, exhibits, and/or other evidence to support her or its
proposed findings of fact. As the trier of fact, we have found
the facts herein by evaluating and weighing the evidence before
us, giving proper regard to our perception of each witness
derived from seeing and hearing him or her testify on the stand.
We have been guided by petitioner’s expert, Diane B. Wallace,
whom, as discussed below, we find to be very knowledgeable on the
reinsurance industry. We have also been guided by our
understanding of the insurance and reinsurance industries in
general, as well as by our knowledge of the applicable statutory
scheme as it relates to these industries.
The primary issue before us is one of first impression;
namely, whether it was an abuse of discretion for the
Commissioner to determine that each of the Agreements had “a
significant tax avoidance effect” within the meaning of section
845(b). The tax avoidance effect identified by the Commissioner
is that the Agreements allowed petitioner to claim and benefit
from the small life insurance company deduction of section 806.15
15 Sec. 806 provides in part:
(a) Small Life Insurance Company Deduction.--
(1) In general.--* * * the small life insurance
company deduction for any taxable year is 60 percent of
so much of the tentative LICTI for such taxable year as
does not exceed $3,000,000.
(2) Phaseout between $3,000,000 and $15,000,000.--
The amount of the small life insurance company
deduction determined under paragraph (1) for any
taxable year shall be reduced (but not below zero) by
15 percent of so much of the tentative LICTI for such
(continued...)
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