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considered in determining tax avoidance effect because the
economic value of income and deductions depends on the tax
bracket of the insurer. Bracket shifting is possible, for
example, between small and large insurers, profit and loss
insurers, and life and nonlife insurers. Id.
It appears that Guardian was in a higher tax bracket than
petitioner, but we find this inconclusive. We draw no inference
from this factor. It is neutral.
vii. General Financial Situations
The general financial situation of the parties is another
factor to consider. The conference report states, for example,
that the fact a surplus relief reinsurance agreement is entered
into to protect a party from insolvency may indicate that the
transaction has no significant tax avoidance effect. Id.
Respondent argues that the general financial situation of
Guardian points toward a conclusion of a significant tax
avoidance effect because Guardian did not need the surplus relief
generated by the Agreements to protect itself from insolvency.
Unlike respondent, we do not draw from the example in the
conference report a negative inference that surplus relief
invariably has a significant tax avoidance effect unless its
object is to prevent an insolvency. Ms. Wallace testified that
it is common for an insurer with excess capital and surplus in
relation to liabilities to increase its return by putting that
capital and surplus to work, as petitioner did via the
Agreements.
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