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rule of OBRA 1990, section 11305(c)(3), 104 Stat. 1388-452 (the
special deduction rule), provided as follows:
Treatment of companies which took into account
salvage recoverable.–-In the case of any insurance
company which took into account salvage recoverable in
determining losses incurred for its last taxable year
beginning before January 1, 1990, 87 percent of the
discounted amount of estimated salvage recoverable as of
the close of such last taxable year shall be allowed as
a deduction ratably over its 1st 4 taxable years
beginning after December 31, 1989.
For 1990 through 1993, Blue Cross timely filed consolidated
U.S. Corporation income tax returns. Blue Cross calculated that
under the special deduction rule a total of $70,950,582 reflected
Blue Cross' estimated salvage recoverable relating to incurred
but unpaid losses for its last taxable year beginning before
January 1, 1990. Accordingly, Blue Cross multiplied the total
$70,950,582 by 87 percent and by a discount factor of
approximately 4 percent, to produce a figure of $59,352,862, and
Blue Cross deducted one fourth of the $59,352,862, or
$14,838,215, for each of the years 1990 through 1993 as its
special deduction.
On audit for years 1992 and 1993, respondent disallowed each
of Blue Cross' claimed $14,838,215 special deductions.1
1 The evidence does not indicate respondent's treatment of the
special deductions claimed by Blue Cross on its 1990 and 1991
Federal corporation income tax returns.
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