- 6 -
every year; and (ii) providing an exit if the tax laws change or
Winn-Dixie's appetite for interest deductions declines."
The memorandum summarized the tax aspects of leveraged COLI
with the following captioned diagram:
Insurance
IRS
Carrier
(1) (3)
(2)
Winn-Dixie
1 - Winn-Dixie makes deposits and pays loan interest
to insurance carrier.
2 - Winn-Dixie receives withdrawals, loans and death
proceeds from the insurance carrier.
3 - Winn-Dixie receives a tax deduction for loan interest
paid.
The memorandum next explained the difference between the
proposed broad-based COLI pool and petitioner's then existing
leveraged COLI program being used to fund the MSP. The
memorandum stated:
Winn-Dixie is familiar with leveraged COLI and
particularly with the tax arbitrage created when
deductible policy loan interest is paid to finance non-
taxable policy gains. Winn-Dixie's existing leveraged
COLI policies provide this arbitrage and, having been
purchased before passage of the 1986 Tax Reform Act,
provide it beyond the $50,000 cap applicable to newer
policies.
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