WINN-DIXIE STORES, INC. V. COMMISSIONER 254 F.3d 1313 (11th Cir. 2001) CASE BRIEF

WINN-DIXIE STORES, INC. V. COMMISSIONER

254 F.3d 1313 (11th Cir. 2001)

NATURE OF THE CASE: Winn-Dixie Stores, Inc. (P) appealed the tax court's judgment resting on the conclusion that P was not entitled to deduct interest and fees incurred in borrowing against insurance policies that it owned on the lives of more than 36,000 P employees.

FACTS: In 1993, P embarked on a broad-based company-owned life-insurance (COLI) program whose sole purpose, as shown by contemporary memoranda, was to satisfy Winn-Dixie's 'appetite' for interest deductions. P purchased whole life insurance policies on almost all of its full-time employees, who numbered in the tens of thousands wherein P was the sole beneficiary of the policies. P would borrow against those policies' account value at an interest rate of over 11%. The high interest and the administrative fees that came with the program outweighed the net cash surrender value and benefits paid on the policies, with the result that in pretax terms P lost money on the program. The deductibility of the interest and fees post-tax, however, yielded a benefit projected to reach into the billions of dollars over 60 years. The IRS determined a deficiency because of the interest and fee deductions taken in P's 1993 tax year. The tax court rejected P's assertions that the COLI program had a business purpose, or that Congress had expressly authorized its tax benefits. The court held that the loans were substantive shams, and that P was therefore not entitled to deductions for the interest and fees paid for the loans. P appealed.

ISSUE:

RULE OF LAW:

HOLDING AND DECISION:

LEGAL ANALYSIS:

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