Three wheel අයිය සහ ශිරෝමිකා Download
Background—The Service argued in Sears, Roebuck & Co. v. Commissioner, that the coverage of Sears’s risks by Allstate, a wholly owned subsidiary, did not qualify as insurance. This coverage represented less than one-percent of Allstate’s total business and the business was conducted in an arm’s length manner.
The Tax Court—The Tax Court indicated that whether a transaction qualifies as insurance depends on the underlying facts and circumstances.
After applying the following three sets of factors the court concluded that Allstate’s coverage of Sears’s risks constituted insurance,
(1) Allstate covered claims that arose from insurance risks. The court contrasted the coverage with arrangements involving investment risks. It focused on the “nature of the losses covered by the policies and the designated responsibility for payment of those losses.” The impact on Sears’s “ultimate profit or loss
from Allstate’s operations [was] not significant to the analysis of whether the contractual arrangements deal with insurance risks;”
(2) The policies shifted and distributed the risks. The risks were shifted to Allstate, which “was a separate, viable entity, financially capable of meeting its obligations.”139 In addition, Allstate was not formed or operated to self-insure Sears. The policies were sold under the same terms, and in the same context as sales to unrelated third parties. The court stated that risk distribution is the “spreading of loss among the participants in an insurance program.” Such spreading arises from the pooling of risks among unrelated insureds, which “increases the reliability in establishing premiums and estimating appropriate reserves;” and,
(3) The transactions reflected commonly accepted notions of insurance. The court concluded that the arrangement was characterized as insurance with regards to all non-tax purposes
