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In determining whether a transaction should be respected for
tax purposes, we also look to whether the taxpayer had a business
purpose for engaging in the transaction other than tax avoidance.
See Frank Lyon Co. v. United States, 435 U.S. 561, 583-584
(1978); Kirchman v. Commissioner, supra at 1492; Bail Bonds by
Marvin Nelson, Inc. v. Commissioner, supra at 1549. Petitioner
argues that it had an economic objective and valid business
purposes for entering into the COLI transaction other than tax
avoidance. Petitioner alleges that before entering into the 1993
COLI transaction, it had become concerned with increasing costs
associated with its Winn-Flex program and that it decided to
implement the COLI program as a mechanism for obtaining funds to
pay such costs.
Before entering into the COLI transaction, there were
numerous versions of profit and loss and cash-flow projections,
which were consistently formatted so that petitioner could
compare the pretax earnings effect to the post-tax earnings
effect. Petitioner requested multiple versions of the
projections at various estimated combined Federal and State
marginal tax rates in order to see what effect a change in rates
would have on the proposed COLI transaction. On the other hand,
petitioner produced no contemporaneously prepared documents
indicating that it purchased the 1993 COLI policies in order to
provide a source for funding its Winn-Flex obligations. Unlike
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