Capital Blue Cross and Subsidiaries - Page 13

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          group contracts in effect on January 1, 1987, and that were                 
          terminated in 1994).5                                                       
               The total $2,648,249 in loss deductions claimed on                     
          petitioner’s 1994 corporate Federal income tax return was based             
          on a September 10, 1995, valuation report (initial valuation                
          report) prepared for petitioner by a major accounting firm.  The            
          initial valuation report calculated a value for all of                      
          petitioner’s 23,526 group contracts that were in effect on                  
          January 1, 1987, by separating the contracts into two blocks --             
          small groups (with less than 100 individual members) and large              
          groups (with 100 or more individual members).  The initial                  
          valuation report set forth, as of January 1, 1987, a cumulative             
          total value for all of petitioner’s small group contracts of                
          $57.8 million, and a cumulative total value for all of                      
          petitioner’s large group contracts of $105.7 million, for a                 
          combined cumulative total value for both blocks (representing all           
          23,526 of petitioner’s group contracts in effect on January 1,              
          1987) of $163.5 million.                                                    


               5  Petitioner has not claimed loss deductions relating to              
          the termination of any health insurance contracts that it entered           
          into directly with individuals.  Also, where a group entered into           
          more than one contract with petitioner, petitioner claimed a loss           
          deduction with regard to its multiple contracts with that group             
          only in the year in which the group’s last contract with                    
          petitioner was terminated.  Because of this last point, the 376             
          group contracts for which petitioner now claims loss deductions             
          for 1994 actually represent 698 insurance contracts relating to             
          376 groups.                                                                 




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