The Harper Group, and Includible Subsidiaries v. Commissioner of Internal Revenue Service

The Harper Group (Harper) and certain of its domestic subsidiaries purchased insurance policies from Rampart Insurance Co., Ltd. (Rampart) and deducted the premiums for income tax purposes. Rampart is a wholly owned subsidiary of two of Harper’s subsidiaries. The Commissioner of Internal Revenue (Commissioner) determined that because of the relationship among the parties the transactions did not constitute insurance. A notice of deficiency was issued by the Commissioner, and Harper and its subsidiaries petitioned the Tax Court for a redetermination. The Tax Court found that the transactions were insurance. It, therefore, held against- the Commissioner who now appeals. We affirm.

In AMERCO, Inc. v. Commissioner, 979 F.2d 162 (9th Cir.1992) we decided that it is possible to have a true insurance transaction between a corporation and its wholly owned insurance company if that captive does substantial unrelated insurance business. Likewise other members of the corporate group can have true insurance transactions with the captive. The result is that insurance premiums paid by the parent or the other members of the group are deductible by them. The only relevant way in which this case…