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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  1. I have an open CHINS case I failed a urine screen I have since got clean completed IOP classes now in after care passed home inspection my x sister in law has my children I still don't even have unsupervised when I have been clean for over 4 months my x sister wants to keep the lids for good n has my case working with her I just discovered n have proof that at one of my hearing dcs case worker stated in court to the judge that a screen was dirty which caused me not to have unsupervised this was at the beginning two weeks after my initial screen I thought the weed could have still been in my system was upset because they were suppose to check levels n see if it was going down since this was only a few weeks after initial instead they said dirty I recently requested all of my screens from redwood because I take prescriptions that will show up n I was having my doctor look at levels to verify that matched what I was prescripted because dcs case worker accused me of abuseing when I got my screens I found out that screen I took that dcs case worker stated in court to judge that caused me to not get granted unsupervised was actually negative what can I do about this this is a serious issue saying a parent failed a screen in court to judge when they didn't please advise

  2. I have a degree at law, recent MS in regulatory studies. Licensed in KS, admitted b4 S& 7th circuit, but not to Indiana bar due to political correctness. Blacklisted, nearly unemployable due to hostile state action. Big Idea: Headwinds can overcome, esp for those not within the contours of the bell curve, the Lego Movie happiness set forth above. That said, even without the blacklisting for holding ideas unacceptable to the Glorious State, I think the idea presented above that a law degree open many vistas other than being a galley slave to elitist lawyers is pretty much laughable. (Did the law professors of Indiana pay for this to be published?)

  3. Paul Hartman of Burbank, Oh who is helping Sister Fuller with this Con Artist Kevin Bart McCarthy scares Sister Joseph Therese, Patricia Ann Fuller very much that McCarthy will try and hurt Patricia Ann Fuller and Paul Hartman of Burbank, Oh or any member of his family. Sister is very, very scared, (YES, I AM) This McCarthy guy is a real, real CON MAN and crook. I try to totall flatter Kevin Bart McCARTHY to keep him from hurting my best friends in this world which are Carolyn Rose and Paul Hartman. I Live in total fear of this man Kevin Bart McCarthy and try to praise him as a good man to keep us ALL from his bad deeds. This man could easy have some one cause us a very bad disability. You have to PRAISAE in order TO PROTECT yourself. He lies and makes up stories about people and then tries to steal if THEY OWN THRU THE COURTS A SPECIAL DEVOTION TO PROTECT, EX> Our Lady of America DEVOTION. EVERYONE who reads this, PLEASE BE CAREFUL of Kevin Bart McCarthy of Indianapolis, IN My Phone No. IS 419-435-3838.

  4. Joe, you might want to do some reading on the fate of Hoosier whistleblowers before you get your expectations raised up.

  5. I had a hospital and dcs caseworker falsify reports that my child was born with drugs in her system. I filed a complaint with the Indiana department of health....and they found that the hospital falsified drug screens in their investigation. Then I filed a complaint with human health services in Washington DC...dcs drug Testing is unregulated and is indicating false positives...they are currently being investigated by human health services. Then I located an attorney and signed contracts one month ago to sue dcs and Anderson community hospital. Once the suit is filed I am taking out a loan against the suit and paying a law firm to file a writ of mandamus challenging the courts jurisdiction to invoke chins case against me. I also forwarded evidence to a u.s. senator who contacted hhs to push an investigation faster. Once the lawsuit is filed local news stations will be running coverage on the situation. Easy day....people will be losing their jobs soon...and judge pancol...who has attempted to cover up what has happened will also be in trouble. The drug testing is a kids for cash and federal funding situation.