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7th Circuit: expenses were capital expenditures

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An Indianapolis-based health insurer can't deduct its settlement payments or legal expenses from the litigation because the insurer's payments were actually capital expenditures, the 7th Circuit Court of Appeals affirmed today.

In WellPoint Inc. v. Commissioner of Internal Revenue, No. 09-3163, WellPoint challenged the U.S. Tax Court's ruling that upheld the IRS' refusal to allow the insurer to deduct a $113 million settlement to three states or the nearly $1 million in legal fees from the litigation as "ordinary and necessary business expenses."

The 7th Circuit briefly addressed the parties' arguments about the scope of appellate review and held it would still affirm the tax court's decision under either standard proposed.

WellPoint, the nation's largest health insurer based on membership, is a for-profit company. When it was still Anthem in the 1990s, the company acquired three Blue Cross Blue Shield insurance companies, which had been formed as non-profits. Attorneys general from Connecticut, Kentucky, and Ohio sued WellPoint alleging it was using the acquired assets to make profits in violation of those companies' charitable statuses. The case was settled, and WellPoint attempted to write off the settlement and legal expenses as ordinary and necessary business expenses.

WellPoint claimed its expenses were "ordinary" because it was defending against claims that it was improperly using its property - the assets of the acquired companies. The government argued WellPoint was defending its title to the acquired assets, which the 7th Circuit Court has said aren't ordinary expenses.

The 7th Circuit judges pointed out the remedy sought or agreed to is a clue to the nature of the claim in the instant case. The attorneys general were trying to strip WellPoint of its equitable ownership, its right to use the acquired assets for profit.

An alternative argument raised was that the settlement was in effect a partial restoration of the acquired assets to their rightful owners and that like any other repayment of money, it wasn't a capital expenditure and shouldn't have any tax consequences at all. The judges declined to accept this alternative option.

"It is true that if you receive money as a loan and repay it, the repayment is not deductible from your taxable income, because you never claimed to own the money you had borrowed," wrote Judge Richard Posner. "But WellPoint always claimed (it still claims) to have equitable title to the assets it acquired. The expenses that it reasonably incurred to defend that claim - the claim to own the assets free and clear - are capital expenditures, not repayments."

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  3. All these sites putting up all the crap they do making Brent Look like A Monster like he's not a good person . First off th fight actually started not because of Brent but because of one of his friends then when the fight popped off his friend ran like a coward which left Brent to fend for himself .It IS NOT a crime to defend yourself 3 of them and 1 of him . just so happened he was a better fighter. I'm Brent s wife so I know him personally and up close . He's a very caring kind loving man . He's not abusive in any way . He is a loving father and really shouldn't be where he is not for self defense . Now because of one of his stupid friends trying to show off and turning out to be nothing but a coward and leaving Brent to be jumped by 3 men not only is Brent suffering but Me his wife , his kids abd step kidshis mom and brother his family is left to live without him abd suffering in more ways then one . that man was and still is my smile ....he's the one real thing I've ever had in my life .....f@#@ You Lafayette court system . Learn to do your jobs right he maybe should have gotten that year for misdemeanor battery but that s it . not one person can stand to me and tell me if u we're in a fight facing 3 men and u just by yourself u wouldn't fight back that you wouldn't do everything u could to walk away to ur family ur kids That's what Brent is guilty of trying to defend himself against 3 men he wanted to go home tohisfamily worse then they did he just happened to be a better fighter and he got the best of th others . what would you do ? Stand there lay there and be stomped and beaten or would u give it everything u got and fight back ? I'd of done the same only I'm so smallid of probably shot or stabbed or picked up something to use as a weapon . if it was me or them I'd do everything I could to make sure I was going to live that I would make it hone to see my kids and husband . I Love You Brent Anthony Forever & Always .....Soul 1 baby

  4. Good points, although this man did have a dog in the legal fight as that it was his mother on trial ... and he a dependent. As for parking spaces, handicap spots for pregnant women sure makes sense to me ... er, I mean pregnant men or women. (Please, I meant to include pregnant men the first time, not Room 101 again, please not Room 101 again. I love BB)

  5. I have no doubt that the ADA and related laws provide that many disabilities must be addressed. The question, however, is "by whom?" Many people get dealt bad cards by life. Some are deaf. Some are blind. Some are crippled. Why is it the business of the state to "collectivize" these problems and to force those who are NOT so afflicted to pay for those who are? The fact that this litigant was a mere spectator and not a party is chilling. What happens when somebody who speaks only East Bazurkistanish wants a translator so that he can "understand" the proceedings in a case in which he has NO interest? Do I and all other taxpayers have to cough up? It would seem so. ADA should be amended to provide a simple rule: "Your handicap, YOUR problem". This would apply particularly to handicapped parking spaces, where it seems that if the "handicap" is an ingrown toenail, the government comes rushing in to assist the poor downtrodden victim. I would grant wounded vets (IED victims come to mind in particular) a pass on this.. but others? Nope.

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