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their portion of the premiums paid to Northwestern. Malone &
Hyde, Inc. v. Commissioner, T.C. Memo. 1989-604.
In our first opinion in Malone & Hyde, Inc., we sustained
respondent's determination that there was no shifting of risks
from the parent and the sister subsidiaries to Eastland for the
portion of the insurance premiums that Malone & Hyde paid to
Northwestern and which Northwestern then paid to Eastland as
reinsurance premiums. Malone & Hyde, Inc. v. Commissioner, T.C.
Memo. 1989-604. Following the reversal of Humana Inc. & Subs. v.
Commissioner, 88 T.C. 197 (1987), we reconsidered our first
decision in Malone & Hyde, Inc. in light of language in Humana
Inc. v. Commissioner, 881 F.2d at 255, that in applying the
balance sheet and net worth analysis we look solely at the impact
a claim of loss would have on the assets of the insured. In our
Supplemental Opinion in Malone & Hyde, Inc., using that criteria,
and applying our three-prong test (i.e., (1) whether insurance
risks are involved, (2) whether risk shifting and risk
distribution is present, and (3) whether insurance in its
commonly accepted sense exists), we found that the premiums paid
by the sister subsidiaries were deductible as insurance. Malone
& Hyde, Inc. v. Commissioner, T.C. Memo. 1993-585.
The Court of Appeals for the Sixth Circuit reversed our
decision. The court stated:
We believe the tax court put the cart before the horse
in this case. It should have determined first whether
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