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The Transactions Between Parthenon and HCA and the Sister
Subsidiaries Are Insurance Transactions
Pursuant to the principles of Moline Properties, Inc. v.
Commissioner, 319 U.S. 436 (1943), respondent does not contend
that Parthenon's separate corporate existence should be ignored
for Federal income tax purposes or that Parthenon itself is a
sham corporation. Respondent contends, however, that the
transactions between Parthenon and petitioners during the years
in issue, including the issuance of insurance policies and
setting of reserves, were not bona fide insurance transactions
and were motivated by tax concerns.
Respondent contends that petitioners intended to, and did,
treat Parthenon as a form of self-insurance to carry out a loss
prevention and risk management program for their hospitals.
Respondent concedes that Parthenon was licensed and regulated as
a captive insurance company by the State of Tennessee, and that
it satisfied the applicable regulatory criteria for operation as
a captive insurer. Respondent, however, maintains that the
regulatory criteria, as well as Blue Cross' annual audits and
Continental's annual reviews, were no more than what would be
necessary for a self-insurance plan. Respondent contends that
petitioners formed Parthenon as a captive insurance company in
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