-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 taxPage: Previous 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Next
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