-49-
withstand 100-mph winds. Respondent also points out that
petitioner's expert, Richard Moscicki, testified that there was a
low probability that petitioner would lose its entire herd due to
disease or toxic contamination. Finally, respondent contends
that the fact that petitioner waited more than 10 years after the
brucellosis outbreak to create the self-insurance reserve shows
that petitioner's purpose was to avoid the accumulated earnings
tax.
We disagree that petitioner exaggerated the threat of
disease or other possible loss to its herd. Petitioner lost
about 1,300 cows during the brucellosis outbreak in the 1970's.
About 120 of its cows tested positive for brucellosis from 1985
to 1989, and its cows were quarantined during the years in issue.
Petitioner's risks increased in the 1980's as more of its cattle
were concentrated in smaller areas.
Loss history is relevant if it provides information about
the likelihood of the harm. Cf. sec. 1.537-1(f)(2), Income Tax
Regs. (referring to product liability loss reserves). However, a
taxpayer is not precluded from insuring against a potential loss
just because the taxpayer has not previously experienced that
particular loss. EMI Corp. v. Commissioner, T.C. Memo. 1985-386.
Respondent contends that petitioner improperly failed to
consider that an uninsured loss of cattle could provide tax
reductions, or that it may have legal recourse against the
supplier of contaminated feed. We disagree. An income tax
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