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been entitled to make adjustments in its tax books and records to
reflect a step up in its tax basis, for purposes of determining
gain or loss, relating to each of its 23,526 group contracts that
were in effect on January 1, 1987 (including the 376 group
contracts at issue herein), from zero to an amount equal to each
contract’s January 1, 1987, fair market value. During 1987
through 1994, however, in petitioner’s tax books and records no
such tax basis adjustments were made.
Accordingly, on its originally filed corporate Federal
income tax returns for 1987, 1988, 1989, 1990, 1991, 1992, and
1993, petitioner claimed no loss deductions under section 165
relating to its health insurance group contracts that were
outstanding on January 1, 1987, and that were terminated during
each respective year.
On its 1994 corporate Federal income tax return, petitioner
first claimed loss deductions under section 165 relating to
terminated health insurance group contracts.
As filed on approximately September 15, 1995, there was
reflected on petitioner’s 1994 corporate Federal income tax
return loss deductions under section 165 in the cumulative total
amount of $2,648,249 relating to the claimed fair market value of
the 376 group contracts (that were among petitioner’s 23,526
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