- 102 -
length negotiations and that the price of 25 cents per $100 was
far in excess of the price that could have been negotiated by
petitioner. This is another indication to us that petitioner's
arrangement with NUF and OPL was a sham.
Finally, unlike petitioner's purported business reasons for
its arrangement with NUF and OPL, there is contemporaneous
documentation to establish that petitioner seriously considered
and was motivated by the reduction of Federal income tax that
would occur by transferring excess value income to OPL. In July
1982, petitioner's tax manager and another employee prepared a
memorandum to Mr. Danielewski concerning tax and other
implications of the insurance business. The memorandum was
prompted by a meeting at which petitioner's EVC program was
discussed. In September 1982, Hall prepared a memorandum
regarding the feasibility of creating a United Parcel Service
Insurance Subsidiary. Throughout the memorandum, Hall noted that
there were a number of tax benefits if an offshore insurance
company were to be created. The tax benefits were stated to be
approximately $24 million.
In summary, the report states:
It has been the purpose of this brief preliminary
report to consider in some detail the immediate
potential available to [petitioner] in maximizing the
profit potential in the declared value protection which
you are currently providing shippers and also to
acquaint you with some of the basic issues involved in
a captive operating in either a traditional role or
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