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effect of the COLI plan was a first-year loss40 of $4,188,000
computed as follows:
Net premium payment $7,245,000
Interest on policy loan 11,191,000
Administrative fees 290,000
18,726,000
Less: Net cash surrender value 11,287,000
Death benefits 3,250,000
14,537,000
Loss 14,189,000
1The June 1993 projection shows $4,188,000. This is apparently
due to rounding or a math error.
Following the same approach, the June 1993 projections show the
COLI plan producing pretax losses in the next 2 policy years of
$7,885,000 and $10,869,000, respectively. Thereafter, the pretax
losses over the next 57 years range from $6,244,000 in the last
year to $16,447,000 in year 2021. The total of pretax losses for
the projected 60 years was $681,922,000. In each and every year,
the combined yearly pretax benefits from the policies; i.e., the
expected death benefits from the 36,000 policies plus the year-
end net equity value of the policies, were substantially less
than petitioner's cost of maintaining the policies.
The next part of the June 1993 profit and loss projections
illustrates the "tax effect" of the COLI plan. The profit and
loss statement contained in the June 1993 projections shows
40The projections refer to the loss as negative pretax
earnings.
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