- 49 -
additional capital to HCI for the payment of any losses. Id.
During the last year in issue, however, Humana did contribute
$1,323,000 additional capital to HCI. Id. HCI was not included
in the consolidated returns filed by Humana and its subsidiaries.
Id. at 205. Relying on precedent, we held that the premiums paid
by Humana to HCI on its own behalf as well as the premiums paid
by Humana and then allocated and charged back to the sister
subsidiaries were not deductible but were equivalent to additions
to a reserve for losses. Id. at 206-207, 213-214.
The Court of Appeals for the Sixth Circuit affirmed our
decision that payments Humana had made to HCI for insurance on
behalf of its own hospitals were not deductible, but reversed our
similar decision as to those payments made on behalf of hospitals
owned by the sister subsidiaries. Humana Inc. v. Commissioner,
881 F.2d 247 (6th Cir. 1989). The court concluded that, pursuant
to the principles of Moline Properties, Inc. v. Commissioner, 319
U.S. 436 (1943), the sister subsidiaries must be treated as
separate corporations from the parent. In its analysis as to
whether risks had shifted to HCI, the Court of Appeals noted
that:
Health Care Indemnity met the State of Colorado's
statutory minimum requirements for an insurance company, was
recognized as an insurance company following an audit and
certification by the State of Colorado, and is currently a
valid insurance company subject to the strict regulatory
control of the Colorado Insurance Department. The State of
Colorado has either approved or established the premium rate
for insurance between the Humana affiliates and Health Care
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