122 T.C. No. 11
UNITED STATES TAX COURT
CAPITAL BLUE CROSS AND SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13322-01. Filed March 12, 2004.
As part of its statutory conversion under sec.
1012(a) and (b) of the Tax Reform Act of 1986, Pub. L.
99-514, 100 Stat. 2390, from a tax-exempt to a taxable
entity, petitioner generally was entitled to step up
its tax basis in its assets to their Jan. 1, 1987, fair
market value.
Held, among other things, for 1994: (1) The basis
step-up provision of sec. 1012(c)(3)(A)(ii) of the Tax
Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2394, is
not limited to “sale or exchange” transactions; and (2)
because petitioner’s valuation of its health insurance
group contracts did not constitute a contract-by-
contract valuation, did not establish a credible
discrete value for each contract, and is otherwise
deficient, claimed loss deductions under sec. 165,
I.R.C., in the cumulative total amount of $3,973,023
relating to petitioner’s 376 health insurance group
contracts that were terminated in 1994 are not
allowable.
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