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petitioners contend, the sister subsidiaries' premium payments
shifted their risks to Parthenon. We agree. Under the balance
sheet and net worth analysis adopted by the Court of Appeals for
the Sixth Circuit in Humana Inc. v. Commissioner, supra, the
sister subsidiaries shifted insurance risks to Parthenon, except
for the workers' compensation liability covered by the
indemnification agreement between HCA and Ideal Mutual. Pursuant
to Malone & Hyde, Inc. v. Commissioner, 62 F.3d 835 (6th Cir.
1995), there is no risk shifting of the workers' compensation
liability that was subject to the indemnification agreement
between HCA and Ideal Mutual, and, consequently, any addition to
the workers' compensation reserves attributable to the Ideal
Mutual policies is not deductible.
Accordingly, we conclude that Parthenon provided insurance
for the sister subsidiaries for the years in issue and, thus,
functioned as an insurance company. Sec. 816(a); see also sec.
1.801-3(a)(1), Income Tax Regs.
The second issue we must decide is what portion of
Parthenon's reserves for unpaid losses and expenses is deductible
for the years in issue. The parties have agreed as to all
adjustments relating to Parthenon's unpaid losses reserves except
the question of whether any or all of the adjustments set out in
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