Humana, Inc. v. Commissioner

HAMBLEN, J., concurring: In Clougherty Packing Co. v. Commissioner, I expressed my concern about the “economic family” concept. 1 Noting that respondent’s assertion of the economic family concept did not square with Moline Properties v. Commissioner, 319 U.S. 436 (1943), I felt that the Moline Properties issue was injected unnecessarily into Clougherty by way of the economic family concept analogy. I could see little difference between the economic family concept described in Rev. Rul. 77-316, 1977- 2 C.B. 53 , and the determination made by the majority in Clougherty. However, I concluded that the Clougherty arrangement was not a true insurance arrangement as there was no risk distribution. Following a similar analysis, I concur only in the result of the majority opinion and agree in principle with Judge Whitaker’s concurring opinion.

The majority cites proponents of the economic family concept as authority to support its determination. This, I feel, is neither appropriate nor necessary for the following reasons.

First, one has only to thumb through any text or hornbook on corporate tax law to see the arsenal available to respondent in related corporation transactions. Yet this plethora of available tools, whether codified or judicially developed, apparently is inadequate for respondent in this area, so he asserts an “economic family” theory which has ominous ramifications within and beyond the captive insurance area. 2

More importantly, under the economic family theory asserted by respondent, there seems to be no real distinction between disregarding transactions between related corporations and disregarding their separate status. However, I submit that, generally, transactions between any entities, related or unrelated, should be repudiated or recharacterized only if they are not legally or factually what they purport to be. The majority’s rebanee on financial reports to buttress its conclusion only fuels the economic family fire; it consobdates two entities for tax purposes which are not permitted to file consobdated tax returns and, without a basis for so doing, erodes the long-standing principle of Moline Properties v. Commissioner, supra.

For these reasons, I strongly bebeve that we should decide the issue solely on a lack of risk-shifting and risk-distribution basis. In this respect, there appears to be no tax avoidance scheme. The intercorporate contractual arrangements are not determined to be shams. Indeed, a business purpose for the transactions is obvious because the entities could not obtain insurance coverage elsewhere.

If we are to abrogate the insurance transaction between these related entities, we should do so by simply saying, without more, that there is neither shifting nor distribution of risk and, consequently, no valid insurance arrangement. If we cannot say that, or must say more than that, then it seems to me that we have vabd insurance transactions between separate, though related, entities.

In sum, I bebeve that the economic family theory may conflict with fundamental principles of tax law by invoking attribution among related corporations where it has not been legislated by Congress. 3 I see no reason to give such a concept credence, as the majority is doing here. Consequently, I concur only in the result reached by the majority.

WHITAKER, J., agrees with this concurring opinion.

See Hamblen, J., concurring, Clougherty Packing Co. v. Commissioner, 84 T.C. 948, 961 (1985).

For example, it has been noted that respondent’s “experts” have stated in another case that the economic family principle is dependent upon piercing the corporate veil. See Bradley & Winslow, “Self Insurance Plans and Captive Insurance Companies - A Perspective on Recent Tax Developments,” 4 Am. J. of Tax Policy 217, 248 n. 101 (1985).

See Bradley & Winslow, 4 Am. J. of Tax Policy at 246-255, supra.