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As a result of the splitup of the Services Group entities in
April 1989, Hanseatic and Eagle became disaffiliated with
petitioners, although Hanseatic and Eagle each remained liable
for losses under the terms of the contracts they previously
entered and assumed that covered the LHW Act losses of
petitioners.
In its consolidated Federal income tax return for its fiscal
year that began April 5, 1989, and ended January 26, 1990,
Stevedoring claimed a deduction in the amount of $6,458,916 in
respect of the portions of transactions that were not treated
previously as insurance for tax purposes in connection with
contracts entered or assumed by Hanseatic. Respondent disallowed
the deduction claimed except for $532,432 that respondent allowed
as a deduction with respect to LHW Act losses and expenses
accrued in petitioners' fiscal year ended January 26, 1990.
In a claim for refund of income taxes that Stevedoring made
for the fiscal year ended January 26, 1990, Stevedoring claimed a
deduction in the amount of $3,590,614 in respect of the portions
of the transactions between Services Group and Eagle that were
not treated as insurance for tax purposes prior to disaffiliation
from Eagle, and Stevedoring sought a refund of income taxes in
the amount of $1,220,809. On March 23, 1995, the IRS Appeals
Office at Seattle, Washington, mailed to Stevedoring a notice of
partial disallowance of the claim for refund. The amount of
refund that was disallowed was $1,097,216.
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