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on petitioner's policy loans based on the assumption that
petitioner's "appetite for interest deductions remains large".
The projections showed that the COLI plan would generate positive
cash-flows and earnings only because of the tax benefit
associated with the interest and fee deductions. Tax
considerations permeated the planning stages of petitioner's
COLI. When the broad-based COLI plan was first explained to him,
Mr. McCook recognized that it was a tax shelter. Mr. McCook's
primary concern was to achieve a positive cash-flow. The only
way a positive cash-flow could be achieved was through the
deduction of interest on policy loans. This is why petitioner
concentrated on its ability to deduct loan interest and the
availability of "exit strategies" in the event new legal
restrictions on deductions were enacted or petitioner's
"appetite" for interest deductions diminished.
Following the enactment of tax law changes in August 1996,
which greatly restricted employers' deductions for interest on
loans from company-owned life insurance policies on the lives of
employees, petitioner terminated its COLI program. See Health
Insurance Portability and Accountability Act of 1996, Pub. L.
104-191, sec. 501, 110 Stat. 2090. The 1996 change in the tax
law caused petitioner's COLI program to become a financial burden
because it specifically prohibited the deduction of policy loan
interest under petitioner's plan. After the 1996 tax law change,
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