- 13 -
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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