- 55 -
produced positive earnings and cash-flow. Indeed, petitioner's
internal records show that petitioner viewed the 1993 COLI plan
as an "Expense Reduction Opportunity", that would produce
estimated savings of $300 million.44 The only "expense" that was
reduced by the COLI plan was petitioner's income tax liability.
Even if we were to accept Mr. McCook's testimony that he
intended to use tax savings to fund Winn-Flex, that would not
cause the COLI plan to have economic substance.45 If this were
sufficient to breathe substance into a transaction whose only
purpose was to reduce taxes, every sham tax-shelter device might
succeed. Petitioner's benefit from the COLI plan was dependent
on the projected interest and fee deductions that would offset
income from petitioner's normal operations. The possibility that
such tax benefits could have been used as a general source of
funds for petitioner's Winn-Flex obligations (or any other
business purpose) does not alter the fact that the COLI plan
44When Mr. McCook was asked how the $300 million was
derived, he testified that he thought that it was the total of
the "After-tax Savings" figures listed in the Jan. 27, 1993,
projections. These Jan. 27, 1993, projections are contained in
appendix A, Profit and Loss Statement. The after-tax earnings
referred to by Mr. McCook are in column J. The total after-tax
earnings for the policy years 1993 through 2007 are slightly more
than $300 million. The total projected after-tax earnings for
the years 1993 through 2052 are more than $2 billion.
45We note that none of these tax savings were earmarked for
funding Winn-Flex. They were simply projected to reduce
petitioner's tax liabilities and thereby increase petitioner's
after-tax profits by more than $2 billion over 60 years.
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