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part of a block rather than as separate assets, and that it fails
to take into account discrete characteristics of each group
contract, and therefore that the group contracts should be
treated as an indivisible mass asset ineligible for the loss
deductions claimed.
We have considered carefully the above court opinions, and
we have reviewed carefully the parties’ arguments, expert witness
reports, and expert witness testimony. Based on that
consideration and review, we conclude that petitioner’s valuation
of its health insurance group contracts is inadequate and does
not properly and credibly establish a discrete January 1, 1987,
value (and therefore a tax basis for loss deduction purposes) for
the 376 separate group contracts. Petitioner is not entitled to
the claimed total $4 million in loss deductions under section 165
relating to the 376 group contracts terminated in 1994.
The valuation of petitioner’s health insurance group
contracts by petitioner’s expert was inadequate for a number of
reasons. Petitioner’s expert derived his value for petitioner’s
health insurance group contracts by treating all of petitioner’s
23,526 group contracts in effect on January 1, 1987, as if they
were sold by petitioner together as a group in a hypothetical
reinsurance transaction. In this hypothetical, a buyer would
acquire from petitioner the right to premiums, the risk, and the
liabilities associated with all 23,526 group contracts, with
petitioner (in exchange for a fee to be paid by the buyer to
petitioner) continuing to service all of the group contracts
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