- 47 -
whether a deduction of a purported insurance premium will be
allowed"), affg. 96 T.C. 18 (1991). Additionally, we
consistently have rejected respondent's "economic family"
theory,10 expressed in Rev. Rul. 77-316, 1977-2 C.B. 53. E.g.,
Sears, Roebuck & Co. v. Commissioner, supra; Humana v.
Commissioner, 88 T.C. at 214. We have concluded, moreover, that
true insurance arrangements may exist between a captive insurance
company subsidiary and its parent, or among a captive insurance
company subsidiary and its sister subsidiaries, where the captive
insurer does substantial unrelated insurance business in addition
to the captive insurance business. See Sears, Roebuck & Co. v.
Commissioner, supra; Harper Group & Subs. v. Commissioner, 96
T.C. 45 (1991); Amerco, Inc. v. Commissioner, 96 T.C. 18 (1991).
The Court of Appeals for the Sixth Circuit, to which the
instant case would be appealable absent stipulation to the
10 Pursuant to the "economic family" theory, a parent cannot
shift risk of loss to a wholly owned subsidiary because the
parent and its subsidiaries, even though separate corporate
entities, represent one economic family. Consequently, the
ultimate economic risk of loss falls on the same persons and the
premiums remain within the economic family. Rev. Rul. 77-316,
1977-2 C.B. 53, 54; see also Clougherty Packing Co. v.
Commissioner, 811 F.2d 1297, 1301-1302 (9th Cir. 1987), affg. 84
T.C. 948 (1985. But see Rev. Rul. 92-93, 1992-2 C.B. 45 (parent
may deduct premiums paid to its wholly owned insurance subsidiary
for insurance on the life of an employee of the parent), which
distinguishes Rev. Rul 77-316. "The 'economic family' concept is
based on the theory that when a captive receives a dollar, its
net worth and its parent's net worth increases by that amount,
and that when the captive pays out a dollar the converse occurs."
Gulf Oil Corp. v. Commissioner, 89 T.C. 1010, 1024 n.7 (1987),
affd. 914 F.2d 396 (3d Cir. 1990)
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