- 59 -
order to create tax deductions for amounts that in fact are self-
insurance.
Petitioners contend that the transactions were in respect of
an insurance company and that respondent's self-insurance
argument is an attempt to recharacterize an insurance
relationship between separate legal entities as self-insurance by
a single economic family.
In the instant case, Parthenon, in form, operated as an
insurance company. It was licensed as a captive insurer, fully
staffed, and performed typical insurance functions, including
underwriting, the setting of premiums and reserves, investment
management, and claims administration. Nonetheless, we must look
beyond the formalities and consider the realities of the
purported insurance transactions between Parthenon and
petitioners. Malone & Hyde, Inc. v. Commissioner, 62 F.3d at
842-843. Based on the record developed in the instant case, we
conclude that Parthenon provided insurance to HCA and to the
sister subsidiaries.
Respondent asserts the following differences to distinguish
the instant case from Humana, Inc. v. Commissioner, supra: (1)
The sister subsidiaries, in effect, were stockholders in
Parthenon; (2) Parthenon was not subject to strict regulatory
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