Stevedoring Services of America, Inc. and Subsidiaries - Page 6

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          relevant to this case, Eagle held licenses to conduct the                   
          insurance business in the States of Washington and Alaska.                  
               Beginning on January 1, 1985, and through the subsequent               
          years relevant to this case, the stevedoring affiliates of                  
          Services Group insured their LHW Act risks with Eagle on a direct           
          basis.  After the splitup, Eagle continued to insure all of                 
          petitioners' LHW Act risks.  In the fiscal years ended                      
          January 31, 1986, and January 30, 1987, Eagle received                      
          approximately 29 percent and 41 percent, respectively, of its               
          premiums from unrelated insureds.  The transactions among                   
          Services Group and its subsidiaries and Eagle that were not                 
          treated as insurance for tax purposes in 1985 through 1987 would            
          have been treated as insurance transactions in those years if the           
          transactions had been entered into with nonaffiliated parties.              
          Audit History                                                               
               Services Group and its affiliates claimed deductions for               
          payments, directly or indirectly, to Hanseatic, Norwesco,                   
          Executive, and Eagle as insurance premiums under section 162 in             
          the years paid.  Services Group and its subsidiaries were audited           
          for each of its fiscal years ended January 31, 1977, through                
          January 25, 1987, except the fiscal year ended January 25, 1980.            
          As a result of the audits, respondent proposed to disallow                  
          insurance premium deductions for payments made in those years               
          directly or indirectly to Hanseatic, Norwesco, Executive, and               
          Eagle.                                                                      




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