Mercury General v. California FTB — In this case the California FTB denied the parent company of a group of insurance company subsidiaries deductions for the expenses incurred managing the insurance companies on the theory that the expenses were incurred to receive nontaxable insurance subsidiary dividends. These expenses were reimbursed dollar for dollar by the insurance companies and the reimbursements were reported by the parent as taxable income. The insurance subsidiaries reported the expenses dollar for dollar in their books. The trial court ultimately allowed 100% of the expenses incurred by the parent.
American General v. California Franchise Tax Board — In this case the FTB denied an interest expense deduction on the basis that the expense was incurred to receive nontaxable insurance company dividends. The taxpayer was required to establish that the borrowing of the many entities in the combined unitary group was exclusively for use in the conduct of their business, an extremely burdensome requirement. The trial court agreed after the trial was concluded that the position of the FTB was not substantially justified, and awarded litigation costs in excess of one million dollars.
Crocker Equipment Leasing v. Oregon Department of Revenue — This case established the right of corporate taxpayers to modify the income apportionment formula adopted by the state where the statutory formula did not reflect properly the business activities conducted in the state by the taxpayer.