United Parcel Service of America - Page 95




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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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