Delbert L. and Margaret J. Baker - Page 33

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               B.   The Actuarial Method                                              
               According to respondent’s expert, Mr. Powell,20 the                    
          actuarial method is a procedure based on actuarial projections of           
          longevity and health care utilization for estimating the                    
          deductible portion of fees paid by a taxpayer to a CCRC.  Like              
          the percentage method, the actuarial method initially requires              
          that expenses be allocated between medical care and nonmedical              
          care.  The following is a simplified description of the actuarial           
          method used by Mr. Powell and relied on by respondent.  On brief,           
          respondent acknowledges that this description does not detail               
          much of the complexity in actually applying the method.                     
               The first step in applying the actuarial method is to                  
          determine operating expenses and capital expenses for the use of            
          fixed assets.  The second step is to estimate the length of time            
          a resident will spend in each level of care.  Although this is              
          normally accomplished using actuarial tables, CCRCs present a               
          complicating factor because survivorship possibilities and the              
          corresponding life expectancies need to be refined by the level             
          of care (e.g., independent living versus assisted living versus             
          skilled nursing care).  The third step is to combine the                    


               20Mr. Powell is the chairman and CEO of A.V. Powell &                  
          Associates, LLC, a firm of consulting actuaries and accountants.            
          Mr. Powell has an undergraduate degree in major statistics from             
          Harvard and a master’s degree in actuarial science from Georgia             
          State University.  Mr. Powell was recognized by the Court as an             
          expert in actuarial science.                                                





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