- 52 -
Distinguishing the cases relied on by the Commissioner,12
the Court of Appeals stated further that the undercapitalization
of the captive insurer or the presence of an indemnification
agreement running from the parent to the captive insurer "alone
provided a sufficient basis from which to find no risk shifting
and to decide the cases in favor of the Commissioner." Humana v.
Commissioner, 881 F.2d at 254 n.2.
The Court of Appeals also stated:
In general, absent specific congressional intent to the
contrary, as is the situation in this case, a court cannot
disregard a transaction in the name of economic reality and
substance over form absent a finding of sham or lack of
business purpose under the relevant tax statute. [Id. at
255; citations omitted.]
The court noted that we had found that Humana had a valid
business purpose for incorporating the captive insurer. Id. The
court found both risk sharing and risk distribution involved in
the transactions between the Humana subsidiaries and HCI. Id.
Risk distribution was involved because losses were spread among a
number of Humana's subsidiaries. Id. at 257.
In Malone & Hyde, Inc. v. Commissioner, T.C. Memo. 1989-604,
supplemented by T.C. Memo. 1993-585, the taxpayer parent,
primarily a wholesale food distributor, together with
12 Those cases were: Beech Aircraft Corp. v. United States,
797 F.2d 920 (10th Cir. 1986); Stearns-Roger Corp. v. United
States, 774 F.2d 414 (10 Cir. 1985); Carnation Co. v.
Commissioner, 71 T.C. 400 (1978), affd. 640 F.2d 1010 (9th Cir.
1981).
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