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within the context of the declared value program as an
insurance subsidiary.
It appears obvious to us that the conversion of the
declared value program to an insured basis utilizing an
offshore insurer and F.I.R.S.T. will increase the
profits generated by this program by approximately
$24,000,000. It is also obvious that there are many
complex issues involved in this conversion which should
be considered by counsel.
The potential increase in after-tax profits appears to be totally
dependent on projected savings in Federal income tax.
In March 1983, Hall prepared a memorandum that contained a
description of the tax benefits if petitioner used the
alternative structure for the excess value program. The
memorandum indicated that the projected tax benefit to petitioner
was $16,077,500 for the first year. Hall arrived at this amount
by calculating the benefit to petitioner to be equal to the
elimination of income tax on petitioner's expected EVC income,
less the fronting fees, premium taxes, Federal excise taxes, and
ceding commission. Thus, the documents generated by Hall portray
the tax results of creating a Bermuda insurance company as the
focus for improving the economic result of the transaction. The
memorandum stated that the projection of tax savings prepared by
Hall was to be submitted to petitioner's senior management by Mr.
Danielewski.
Petitioner subsequently postponed its decision to go forward
with the proposed EVC activity structure because of tax
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