- 15 -
year (1993) resulted in a projected tax saving of $4,524,000.12
A projected deduction for estimated administration fees of
$304,000 resulted in a projected tax saving in 1993 of
$116,000.13 Thus, the total projected tax benefits from
deductions generated by the proposed COLI plan during the first
policy year was $4,640,000.14 The projection compared the
estimated tax benefit of $4,640,000 to the estimated pretax loss
effect of $4,605,000 resulting in a positive "after-tax earnings
effect" of $35,000.15 The after-tax earnings effect (the excess
of tax savings over net pretax costs) was projected to increase
substantially in subsequent years. Coventry's projected after-
tax earnings effect was as follows:
12A deduction of $11,902,000 times an assumed tax rate of 38
percent actually results in a tax benefit of $4,522,760. But see
supra note 8.
13For instance, a deduction of $304,000 times an assumed tax
rate of 38 percent results in a tax benefit of $115,520.
14Thus, $4,524,000 + $116,000 = $4,640,000.
15For instance, a reduction in earnings due to amounts paid
of $4,605,000 can be offset by a reduction in taxes of $4,640,000
for an overall after-tax earnings increase of $35,000.
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