- 38 -
more complete understanding of the COLI policies it purchased
from AIG. Finally, in letters dated December 4, 1997, Mr. McCook
notified Mr. Qureshi and Mr. Buerger of petitioner's intent to
cancel all three blocks of leveraged COLI policies. Mr. McCook
indicated in his notice to Mr. Qureshi that petitioner wished to
surrender COLI blocks I, II, and III as of November 1, October
30, and June 30, 1997, respectively.
OPINION
On its return for the fiscal year ending June 30, 1993,
petitioner claimed a deduction of $3,735,544 for accrued interest
on loans from COLI policies that petitioner purchased in 1993.33
Petitioner also claimed a $100,000 deduction for administrative
fees related to these COLI policies.34 Respondent disallowed the
deductions after determining that the 1993 COLI Plan was tax
motivated, unsupported by any independent business purpose, and
33This was approximately one-third of the total policy loan
interest that would accrue during the first policy year that
began Mar. 1, 1993, and ended Feb. 28, 1994. The $3,735,544 was
interest attributable to the period Mar. 1 through June 30, 1993.
We note that petitioner deducted interest on these "loans" for
the period Mar. 1 through June 30, 1993, even though the COLI
policies and policy loans were not finalized until mid-June 1993.
Respondent argues that interest cannot accrue for a period prior
to the time the loan was actually made. Because of our
disposition, we need not address this issue.
34This was one-third of the $300,000 administrative fee for
the first policy year that began Mar. 1, 1993, and ended Feb. 28,
1994.
Page: Previous 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 NextLast modified: May 25, 2011