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petitioner would have thoroughly analyzed the legal and business
ramifications. That was not done.
Petitioner also argues that one of its business purposes for
restructuring the EVC activity was to leverage the excess value
profits into the creation of a new reinsurance company, which
over time could become a full-line insurer. We have no doubt
that transferring the profits from the EVC activity, tax free,
could provide OPL with the capital to become a full-line insurer
of other risks. But any investment of money into OPL could
accomplish this purpose. The question here is whether petitioner
earned, and must pay tax on, the funds ultimately transferred to
OPL or whether the EVC profits were earned by NUF and OPL. The
purpose for which the profits were ultimately used, or intended
to be used, does not answer the question before us.
Petitioner alleges that another business purpose for
restructuring its EVC activity was to enable it to increase its
rates. Petitioner argues that by removing the excess value
revenue from its operating ratio computation, it could obtain
larger rate increases than would have otherwise been possible.
Petitioner historically targeted a 90-percent operating ratio on
its ground transportation business.39 Petitioner alleges that
39Petitioner's operating ratio was computed as a ratio of
operating expenses to operating revenue. An operating margin is
the inverse of an operating ratio. Thus, a 90-percent operating
(continued...)
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