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consolidated tax returns for the years 1988 through 1990. On or
about the same date, the District Director issued separate 30-day
letters and RAR's to Hibiscus and petitioner proposing similar
adjustments to their respective tax liabilities for 1991. The
RAR's included computations reflecting each entity's corrected
taxable income for each of the years in issue computed on a
separate tax return basis. In particular, respondent proposed to
determine overpayments with respect to Hibiscus' separate tax
liabilities for 1988 through 1991 and deficiencies with respect
to petitioner's separate tax liabilities for the same periods.
Hibiscus and petitioner filed a joint administrative protest with
respect to the proposed adjustments.
First Notice of Deficiency
On April 11, 1996, respondent issued a notice of deficiency
to petitioner determining deficiencies in its Federal income
taxes for the years and in the amounts as follows:
Year Deficiency
1988 $397,397
1989 2,941,341
1990 4,591,998
1991 5,658,976
The notice of deficiency includes an explanation of adjustments
which states in pertinent part:
It is determined that Hibiscus Life Insurance
Company does not qualify as an insurance company under
I.R.C. sec. 816 because not more than half of its
business during the years in question was the issuing
of insurance or annuity contracts or the reinsuring of
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