• TAXATION

US Court of Appeals for the Seventh Circuit

Wellpoint, Inc. v. Commissioner of Internal Revenue

Taxation- Characterization of ' litigation charges' - Petitioner, a for-profit seller of health insurance policies used assets meant for charitable purpose-Charged by authorities- Charges settled by making payments- Claimed settlement charges as deduction- Whether said charges classifiable as "ordinary and necessary" business expenses?- 26 U.S.C. § 162(a) Internal Revenue Code.

Held, such disputes over characterization are resolved by application of what is called the "origin of the claim" doctrine: costs incurred in defending a lawsuit are classified as expenses or as capital expenditures depending on the nature of the claim that gave rise to the litigation. In a case where landlord's litigation expenses were in lieu of proper maintenance, so they are to be treated like the repair expenses for which they are a substitute, and thus can be expensed. But if the landlord were defending against a suit for specific performance of a contract to sell the building, he would be defending the ownership of his capital asset and so the origin of the claim would be a dispute over title. Therefore the expenses that the petitioner reasonably incurred to defend the claim-the claim to own the assets free and clear-are capital expenditures, not repayments.

• CIVIL

Supreme Court of Texas

Harrell v. State of Texas

Civil - Jurisdiction- Civil or Criminal- Trial Court convicted petitioner under drug charges- Directed Texas Department of Criminal Justice to withdraw money from inmate trust account to recover court fees etc.,- Petitioner moved to get said order rescinded to which Trial Court denied- On Appeal, Appellate Court denied for lack of jurisdiction- Whether a Court order directing prison officials to withdraw money from an inmate trust account is a civil or criminal matter?- Texas Government Code Ann. § 501.014 (Vernon 2004)

Held, Section 501.014 includes costs assessed during criminal matters, but it also authorizes inmate-account withdrawals for costs arising in civil proceedings, including payment of child support, restitution, health care costs, and fines. Even as to court fees and costs, the statute applies not just to criminal cases but to all orders for court fees and costs. Moreover, the subject matter of this appeal does not concern Petitioner's guilt, innocence, or punishment, the chief features of a criminal proceeding. The procedure at issue is substantively akin to a garnishment action or an action to obtain a turnover order. Properly viewed, it is a civil post-judgment collection action that is (1) distinct from the underlying criminal judgments assessing Petitioner's conviction, sentence, and court costs, and (2) aimed at seizing funds to satisfy the monetary portion of those judgments. The court is enforcing a money judgment that, while tangentially related to the underlying criminal judgments, is nonetheless removed from them. Therefore, the Court has jurisdiction, as withdrawal orders are more substantively civil than criminal;