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the issue is not whether the highest and best use of
* * * [the taxpayer’s group] contracts is as part of an
ongoing health insurance company. Indeed, that is the
only use of the contracts. The issue, instead, is
whether specific contracts can be valued separately
from the block of contracts to which they belong.
To account for intangible assets such as goodwill that were
associated with the group contracts and that were not lost upon
termination in 1994 of just 376 of the group contracts,
petitioner’s expert claims that (rather than make a capital
charge to account for and to carve out the appropriate value of
the other intangible assets) he made some type of vague expense
adjustment. Petitioner’s expert’s explanation for failing to
make a capital charge for the value of other intangible assets
associated with the 376 group contracts is not credible.
Petitioner’s expert’s valuation does not properly value and carve
out from the valuation of the 23,526 group contracts, nor does it
separate from the value of the 376 group contracts in issue, the
value of related but nonterminated intangible assets such as
goodwill.
In summary, by treating the 376 group contracts in issue as
if they were sold in a reinsurance transaction involving a
package of all 23,526 group contracts, petitioner’s expert
effectively lumps all of petitioner’s group contracts together
and values the group contracts as a block. This approach is
contrary to petitioner’s position that for loss deduction
purposes the 376 group contracts that were terminated in 1994
were properly and discretely valued. In other words, all
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