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and acknowledged the recent change in the law with respect to the
COLI policies. Mr. Qureshi also indicated that AIG would be
pleased to discuss various options available to petitioner.
Coventry prepared a draft booklet dated October 30, 1996,
which contained, among other things, an overview of the current
status of petitioner's COLI pool, an opinion of the financial
effect of the 1996 tax law change, and explanations of several
exit and unwind strategies. The draft booklet indicated that
petitioner had three separate enrollments covering approximately
55,740 lives. The first enrollment "WD1" was in relation to the
policies written in 1993 covering 35,810 employees. The second
enrollment "WD2" was in relation to the policies written on
November 30, 1994, covering 10,704 employees. The third
enrollment "WD3" was written on June 30, 1995, and covered 9,226
employees. With respect to the effect of the 1996 tax law
changes on petitioner's COLI policies, the booklet stated in
pertinent part:
In August of 1996, Congress amended the Internal
Revenue Code was [sic] to deny deductions for any
interest on policy loans on the lives of employees,
officers, and persons financially interested in a trade
or business maintained by the taxpayer. The
disallowance was retroactive to January 1, 1996, except
that deductions may be continued through 1998 on up to
20,000 policies. The deduction on those policies,
however, must be based on an interest rate no higher
than Moody's average corporate bond rate, and only 90%
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