In the
United States Court of Appeals
For the Seventh Circuit
No. 09-3163
W ELLP OINT, INC.,
Petitioner-Appellant,
v.
C OMMISSIONER OF INTERNAL R EVENUE,
Respondent-Appellee.
Appeal from the United States Tax Court.
No. 13585-05—Diane L. Kroupa, Judge.
A RGUED F EBRUARY 9, 2010—D ECIDED M ARCH 23, 2010
Before P OSNER, R OVNER, and SYKES, Circuit Judges.
P OSNER, Circuit Judge. The petitioner, WellPoint (suc-
cessor to Anthem, Inc.), is a for-profit seller of health
insurance policies through subsidiaries that include a
number of Blue Cross Blue Shield insurance companies
(licensees of the Blue Cross and Blue Shield Association).
In the 1990s, the petitioner, when it was still Anthem,
acquired three such companies, one each in Connecticut,
Kentucky, and Ohio. Both the acquiring and the acquired
2 No. 09-3163
companies were at the time mutual insurance companies,
so the mergers had no tax consequences; the members
of Anthem and of the three acquired companies voted
to merge and the mergers made them all members of
Anthem, now WellPoint.
The acquired companies had been formed many
years earlier as nonprofit entities dedicated to providing
health-related benefits on a charitable basis, and that
was their status when they were acquired. But sometime
after the acquisitions, the attorneys general of the three
states of the acquired companies each sued WellPoint
charging that it was using the acquired assets to make
profits, in violation of the restrictions that the charitable
status of the acquired companies had placed on the
use of their assets. The cases were eventually settled
by WellPoint’s paying $113,837,500 to the states. The
Internal Revenue Service refused to allow WellPoint to
deduct from its taxable income either that amount, or
the legal expenses that it had incurred (another $827,595)
in the litigation, as “ordinary and necessary” business
expenses. 26 U.S.C. § 162(a). WellPoint challenged the
ruling in the Tax Court and lost. The court held that
WellPoint’s settlement payments were capital expendi-
tures and so could not be deducted as ordinary and
necessary business expenses.
The parties disagree about the scope of appellate review
of such a ruling. WellPoint argues that review should
be plenary—we should give no deference to the Tax
Court’s determination. The government argues that we
should defer to the ruling unless convinced that it is
clearly erroneous.
No. 09-3163 3
Rulings on pure issues of law, such as the meaning of
“ordinary and necessary business expense” or “capital
expenditure,” are subject to plenary review, while
findings of fact are reviewed just for clear error. Contro-
versy persists over the proper scope of appellate review
of the application of a legal standard to the facts of a
particular case (such rulings are often referred to con-
fusingly as “ultimate findings of fact” or resolutions of
“mixed questions of law and fact”). The better view, we
(and others) have said in previous cases, e.g., United
States v. Frederick, 182 F.3d 496, 499 (7th Cir. 1999);
Hartford Accident & Indemnity Co. v. Sullivan, 846 F.2d
377, 384 (7th Cir. 1988); Wright v. United States, 809 F.2d
425, 428 (7th Cir. 1987); Wright v. Commissioner, 571 F.3d
215, 219 (2d Cir. 2009); ASA Investerings Partnership v.
Commissioner, 201 F.3d 505, 511 (D.C. Cir. 2000), is that
the clear-error standard should govern the review of a
decision that applies a legal standard to particular
facts. The district court (or, as in this case, the Tax Court,
the decisions of which are reviewed “in the same
manner and to the same extent as decisions of the
district courts in civil actions tried without a jury,” 26
U.S.C. § 7482(a)(1); see, e.g., ASA Investerings Partnership
v. Commissioner, supra, 201 F.3d at 511) has a greater
immersion in the facts of a case than the court of ap-
peals. Also, when a decision is fact-specific, plenary review
is not required in order to maintain uniformity of legal
principles throughout the circuit. An appellate court’s
“main responsibility is to maintain the uniformity and
coherence of the law, a responsibility not engaged if the
only question is the legal significance of a particular and
4 No. 09-3163
nonrecurring set of historical events.” Mucha v. King, 792
F.2d 602, 605-06 (7th Cir. 1986).
This analysis implies that the clear-error standard
should govern the review of a ruling that a particular
expenditure was or was not an ordinary and necessary
business expense as distinct from a capital expenditure.
And so we held in Reynolds v. Commissioner, 296 F.3d 607,
612-15 (7th Cir. 2002). But we have to reckon with the
Supreme Court’s statement that “the general characteriza-
tion of a transaction for tax purposes is a question of law
subject to review,” Frank Lyon Co. v. United States, 435 U.S.
561, 581 n. 16 (1978). (By “review” the Court must have
meant plenary review, since factfindings are subject to
review, albeit just for clear error.)
Naturally this formula, given its sponsor, has been
recited in subsequent cases. E.g., Wellons v. Commissioner,
31 F.3d 569, 570 (7th Cir. 1994); Dow Chemical Co. v.
United States, 435 F.3d 594, 599 n. 8 (6th Cir. 2006). But
what does “general characterization” mean? Classifying
a particular expenditure as an expense on the one hand
or as a capital expenditure on the other is applying a
legal standard to facts. The Dow opinion interpreted
“general characterization” to include such classifica-
tions. We are dubious. A judge asked in a bench trial
to decide whether the defendant was negligent applies a
legal standard (the negligence standard) to the facts of
the case—and appellate review is deferential, Thomas v.
General Motors Acceptance Corp., 288 F.3d 305, 307-08
(7th Cir. 2002); Downs v. United States, 522 F.2d 990, 999
(6th Cir. 1975); see generally St. Mary’s Medical Center of
No. 09-3163 5
Evansville, Inc. v. Disco Aluminum Products Co., Inc., 969
F.2d 585, 588-89 (7th Cir. 1992), as it should be according to
our analysis. We don’t see how a negligence case differs in
this respect from this tax case.
We needn’t wade deeper into this mire, however. For
this is not a case in which the standard of review deter-
mines the outcome—a case in which we would affirm if
the standard were clear error and reverse if it were
mere error. We would affirm under either standard.
We’ll begin our analysis by explaining the difference
between a capital expenditure and an ordinary and
necessary business expense, with the aid of examples.
The cost of buying a building is a capital expenditure
because a building has “a useful life substantially
beyond the taxable year,” Treas. Reg. § 1.263(a)-2(a), which
is the general understanding of “capital expenditure.” See,
e.g., U.S. Freightways Corp. v. Commissioner, 270 F.3d 1137,
1143-44 (7th Cir. 2001); Crosley Corp. v. United States,
229 F.2d 376, 379 (6th Cir. 1956); Bruns v. Commissioner,
T.C. Memo 2009-168, 2009 WL 2030886, at *9. A capital
expenditure is not deductible as a business expense
in the year in which it is made; instead it must be depreci-
ated over its useful life, and the amount of depreciation
each year is all that is deductible that year. E.g., Crosley
Corp. v. United States, supra, 229 F.2d at 379. In this way,
cost is matched temporally with revenue, which is a
desideratum of tax law.
The purchase price of a capital asset is not the only
example of a capital expenditure. Any expenditure is
capital if its “utility . . . survives the accounting period” in
6 No. 09-3163
which it is made. Sears Oil Co. v. Commissioner, 359 F.2d
191, 197 (2d Cir. 1966); see also Clark Oil & Refining Corp. v.
United States, 473 F.2d 1217, 1219-20 (7th Cir. 1973). So an
expense incurred to enhance the value of a capital
asset must be capitalized, and thus amortized over the
asset’s remaining life.
In contrast, business expenses incurred in day-to-day
operations are deemed ordinary business expenses and so
(if they also are necessary, which in this context just
means “appropriate and helpful,” Commissioner v.
Heininger, 320 U.S. 467, 471 (1943); Welch v. Helvering,
290 U.S. 111, 113-14 (1933) (Cardozo, J.)) they are deduct-
ible from the business’s taxable income in the year in
which they are incurred. Thus repairs to a building,
which preserve but do not enhance the building’s
value, can be expensed, while improvements intended
to increase the building’s value have to be capitalized.
Moss v. Commissioner, 831 F.2d 833, 835 (9th Cir.
1987) (“expenditures for permanent improvements or
betterments made to increase the value of any property
must be capitalized and depreciated over the useful life
of the improvement”); Connally Realty Co. v. Commissioner,
81 F.2d 221, 221-22 (5th Cir. 1936); Difco Laboratories, Inc.
v. Commissioner, 10 T.C. 660, 667 (1948); Appeal of
Illinois Merchants Trust Co., 4 B.T.A. 103, 106 (1926); Treas.
Reg. §§ 1.162-4, 1.263(a)-1(a), (b). As further explained
in the Connally opinion, “Repairs to a building are neces-
sary, and regarded as ordinary although occasioned in
unusual degree by storm, flood, or the like. But this
building fell into no disrepair, nor was it physically
injured in any way requiring restoration. The city altered
its street with detriment to the desirability of portions
No. 09-3163 7
of the building for rent, but, so far as appears, without
touching the building. The outlay was made in an effort
to adapt the building to changed surroundings, but not
to repair any physical damage to it.” 81 F.2d at 221.
Just as repairs prevent a building from collapsing,
so expenditures to defend title to the building (maybe
someone is seeking specific performance of what he
claims, and you deny, is your agreement to sell him the
building) are incurred to protect the building against
what from the owner’s standpoint might be a loss equiv-
alent to its collapsing. But such expenditures, because
incurred to defend (or assert) the ownership of a capital
asset, cannot be expensed.
The distinction may seem tenuous, but it is well estab-
lished. See Lark Sales Co. v. Commissioner, 437 F.2d 1067,
1077 (7th Cir. 1970) (expenses “incurred for the purpose
of defending and protecting the Medds’ title or property
rights in the Dairy Queen trade name and a trade phrase
originated by the Medds . . . were capital in nature and
not deductible as a business expense”); Burch v. United
States, 698 F.2d 575, 579 (2d Cir. 1983); Redwood Empire
Savings & Loan Ass’n v. Commissioner, 628 F.2d 516, 520-21
(9th Cir. 1980); Melcher v. Commissioner, T.C. Memo. 2009-
210, 2009 WL 2950820, at *4-5; Treas. Reg. § 1.212-1(k)
(“expenses paid or incurred in defending or perfecting
title to property, in recovering property (other than
investment property and amounts of income which, if
and when recovered, must be included in gross income),
or in developing or improving property, constitute a part
of the cost of the property and are not deductible ex-
penses”); Treas. Reg. § 1.263(a)-2(c).
8 No. 09-3163
The particular expenses involved in this case were
incurred in defending a lawsuit. A business that is sued
for unpaid taxes, say, or unpaid rent, is allowed to
deduct its expenses in defending the suit as “ordinary”
business expenses. Trust Under the Will of Binham v. Com-
missioner, 325 U.S. 365, 376 (1945); see also Commissioner
v. Tellier, 383 U.S. 687, 689-90 (1966); Commissioner v.
Heininger, supra, 320 U.S. at 471-72; A.E. Staley Mfg. Co. &
Subsidiaries v. Commissioner, 119 F.3d 482, 487-91 (7th
Cir. 1997); Hauge v. Commissioner, T.C. Memo 2005-276,
2005 WL 3214581 at *5-6. They are the sort of expense
that is incurred to preserve the operation and profit-
ability of the business rather than to acquire or retain or
improve a specific capital asset, and thus are “ordinary
and necessary” even though they are not as regular
and predictable as costs of labor and materials.
WellPoint claims that the cost of the settlement, and (what
need not be discussed separately) the legal expenses
that it incurred in the litigation, were “ordinary” because
it was defending against claims that it was using
its property—the assets of the acquired BCBS compa-
nies—improperly. On this view, WellPoint was like a
landlord who is sued for violating the building code by
failing to maintain his building properly. But the gov-
ernment argues that WellPoint was defending its title to
the acquired assets, and we said that expenses incurred
in defending title to a capital asset are not ordinary ex-
penses. WellPoint ripostes that the attorneys general
never questioned its title but merely its use of the assets
for profit-making rather than charitable purposes.
Such disputes over characterization are resolved by
application of what is called the “origin of the claim”
No. 09-3163 9
doctrine: costs incurred in defending a lawsuit are classi-
fied as expenses or as capital expenditures depending
on the nature of the claim that gave rise to the litigation.
United States v. Gilmore, 372 U.S. 39, 48-49 (1963); Dower
v. United States, 668 F.2d 264, 266 (7th Cir. 1981); Clark
Oil & Refining Corp. v. United States, supra, 473 F.2d at 1219-
21; cf. A.E. Staley Mfg. Co. & Subsidiaries v. Commissioner,
supra, 119 F.3d at 489. In our hypothetical building-code
case the landlord’s litigation expenses were in lieu
of proper maintenance, so they are 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.
In each of the three suits out of which the present
dispute arises WellPoint had acquired assets that were
held in a charitable trust. Two of the suits asked that
the assets be taken out of WellPoint’s hands entirely
and placed in charitable entities with which WellPoint
would have nothing to do. The third, the Ohio suit,
asked that the assets be placed in a charitable trust but
left open the possibility that WellPoint might be the
trustee. But whether the origin of a claim is a dispute
over a capital asset or over the day-to-day operations of
the business is not to be decided by reference to the
outcome of the suit. United States v. Gilmore, supra, 372
U.S. at 48-49; McKeague v. United States, 12 Cl. Ct. 671, 674
(1987), affirmed, 852 F.2d 1294 (Fed. Cir. 1988); Colvin v.
Commissioner, T.C. Memo. 2004-67, 2004 WL 516195, at *4-5.
10 No. 09-3163
Otherwise, as the Supreme Court explained in the Gilmore
case, “if two taxpayers are each sued for an automobile
accident while driving for pleasure, deductibility of their
litigation costs would turn on the mere circumstance of the
character of the assets each happened to possess, that is,
whether the judgments against them stood to be satisfied
out of income- or nonincome-producing property. We
should be slow to attribute to Congress a purpose pro-
ducing such unequal treatment among taxpayers, resting
on no rational foundation.” 372 U.S. at 48.
The remedy that the parties to a lawsuit seek, obtain, or
agree on if they settle the case will sometimes be
unrelated to the nature of the claim out of which the
suit arose, as in Barr v. Commissioner, T.C. Memo 1989-420,
1989 WL 90207; see also Lucas v. Commissioner, 388 F.2d
472, 476 (1st Cir. 1967); Yates Industries, Inc. v. Commissioner,
58 T.C. 961, 971-72 (1972); Treas. Reg. § 1.212-1(m). Imagine
a suit to establish the plaintiff’s ownership of a building,
and the parties agree in settling the suit that the
defendant can retain the building but the plaintiff will be
allowed to occupy it as a tenant. The origin of the
claim would be a dispute over a capital asset, namely
ownership of an asset that has a useful life of more than
a year, even though the remedy would be what one
might expect in a dispute between a landlord and a tenant
over the terms of the lease. The parties’ litigation expenses
would have been incurred to secure or defend ownership
of a capital asset, whatever the terms of the settlement.
Still, the remedy sought or ordered or agreed to can be
a clue to the nature of the claim. Lange v. Commissioner,
No. 09-3163 11
T.C. Memo. 1998-161, 1998 WL 217892, at *3; Estate of
Block v. Commissioner, T.C. Memo. 1988-159, 1988 WL 33528;
cf. Boagni v. Commissioner, 59 T.C. 708, 713 (1973). And that
might seem to be the case here, at least with respect to the
settlement in the Ohio suit. WellPoint says it shows that
the attorney general was just trying to prevent a misuse of
the acquired assets. But this misses the distinction between
legal and beneficial ownership. A trustee has title to the
assets of the trust, but the beneficiaries are the real owners
because they are entitled to the income or other benefits
that the assets of the trust yield, minus only the trustee’s
reasonable fee for managing the assets. Hatcher v. Southern
Baptist Theological Seminary, 632 S.W.2d 251, 252 (Ky. 1982)
(“when property is held in trust the trustee holds the legal
title and the beneficiary or beneficiaries are considered to
be owners of the equitable title”); Guitner v. McEowen, 124
N.E.2d 744, 747 (Ohio App. 1954); Restatement (Third) of
Trusts § 2 and comments d, f (2003); George Gleason
Bogert, George Taylor Bogert & Amy Morris Hess, The Law
of Trusts and Trustees § 1 (3d ed. 2009). The attorneys
general were trying to strip WellPoint of its equitable
ownership—its right to use the acquired assets for profit.
Whether WellPoint remained the trustee was a detail.
Moreover, although the state officials settled for money,
they did not claim that WellPoint had (yet) caused any
harm to anyone by operating the acquired BCBSs for
profit—that it had charged higher insurance premiums
or provided less coverage or treated claims less gener-
ously. The $113 million that the attorneys general received
(and handed over to charitable entities to hold and man-
age) was not damages; it was in lieu of their recovering the
acquired assets.
12 No. 09-3163
A note of confusion has been injected by the plaintiffs’
characterizing their claims as “cy pres” claims. The cy pres
(“as near as”) doctrine allows a court to alter a charity’s
objective if the original objective can no longer be
achieved. The Earl of Craven—having in “mind the sad
and lamentable visitation of Almighty God upon the
kingdom, but more especially upon the Cities of London
and Westminster, in the year 1665 and 1666, by the pesti-
lence and great mortality, and the great necessity that
there was for providing a pest house for the sick, and
burying-place for the dead”—had established a trust for
the maintenance of a pest house and plague pit. But when
the Black Plague no longer ravaged the poor residents of
St. Martin’s-in-the-Fields, the trust was permitted to use
some of its assets to help treat persons with other conta-
gious diseases. Attorney-General v. Earl of Craven, 21
Beavan 392, 52 Eng. Rep. 910, 912, 918-19 (Ch. 1856); see
also National Foundation v. First National Bank of Catawba
County, 288 F.2d 831, 834-36 (4th Cir. 1961). But the trust
would not have been allowed to substitute, for its pest
house and plague pit, a shelter and burying place for
homeless tabby cats, since that objective would not
have been near its original and now unattainable one.
The doctrine has no application to this case. The dispute
is remote from the standard cy pres case, in which the
issue is whether charitable assets can be kept out of the
hands of the residuary legatees even though the original
objective of the charitable bequest can no longer be
achieved. Rice v. Stanley, 327 N.E.2d 774, 784-85 (Ohio
1975); Ministers & Missionaries Benefit Board of American
No. 09-3163 13
Baptist Convention v. Meriden Trust & Safe Deposit Co., 94
A.2d 917 (Conn. 1953); Citizens Fidelity Bank & Trust Co. v.
Isaac W. Bernheim Foundation, 205 S.W.2d 1003, 1007-08 (Ky.
1947); Restatement (Third) of Trusts § 67 (2003). The
original charitable objective of the acquired enti-
ties—namely the provision of health insurance—is not
unattainable. What has happened rather is that the
assets devoted to its attainment have been (according to
the suits) unlawfully used to provide health insurance
for profit; it’s as if the assets had been stolen.
Before concluding we need to consider the alternative
ground for affirmance—or purported ground for
affirmance—advanced by the government in its brief and
strongly urged by its lawyer at argument. More precisely,
we need to consider whether we can consider the alter-
native ground.
The ground is that the settlement with WellPoint was
in effect a partial restoration of the acquired assets to
their rightful owners and that like any other repayment
of money it was not a capital expenditure and therefore
should have no tax consequences at all. Although the
government asks us to affirm the Tax Court’s judgment
rather than to modify it, were we to accept the alternative
ground this would amount to repudiating the court’s
holding that the costs incurred by WellPoint were
capital expenditures, and would place a cloud over Well-
Point’s seeking to deduct the cost in the future as a
capital expenditure to be amortized over the life of the
acquired assets that WellPoint retains by virtue of
having coughed up $113 million to keep them. Litigation
14 No. 09-3163
expenses designed to obtain or protect a capital asset are
added to the basis (essentially, the cost) of the asset and
thus increase the amount of depreciation that the owner
of the asset can take as a deduction from taxable
income over its remaining life. 26 U.S.C. § 1016; Woodward
v. Commissioner, 397 U.S. 572, 574-79 (1970); Lange v.
Commissioner, supra, at *3; Noel v. Commissioner, T.C. Memo
1997-113, 1997 WL 93310, at *7-9. That’s WellPoint’s
fallback position, should we rule (as we have ruled) that
it is not entitled to deduct the settlement and associated
legal fees as ordinary and necessary business expenses.
Had the government wanted us to modify the Tax
Court’s judgment, it would have had to file a cross-appeal.
E.g., El Paso Natural Gas Co. v. Neztsosie, 526 U.S. 473, 479
(1999); Morley Construction Co. v. Maryland Casualty Co., 300
U.S. 185, 190-92 (1937) (Cardozo, J.); Doll v. Brown, 75
F.3d 1200, 1207 (7th Cir. 1996); cf. Eugene Gressman et al.,
Supreme Court Practice 489-94 (9th ed. 2007). An appellant
is permitted to file a reply brief after the appellee files
his brief, and so an appellee who is also an appellant—that
is, who is also seeking relief against the lower court’s
judgment—should have the same right to respond to
his opponent’s brief, and he invokes that right by filing
his own appeal, called a cross-appeal. The filing of a cross-
appeal also serves to alert the court to the dual role of
the parties in the appeal.
But the government is not seeking relief against the Tax
Court’s judgment—though this conclusion depends on
precisely what the “judgment” in a case is. The judgment
is not the court’s opinion or reasoning; it is the court’s
No. 09-3163 15
bottom line, which in this case is the denial of the deduc-
tion sought by WellPoint in the tax years in question. The
government asks us to modify the reasoning of the Tax
Court so that in some future tussle with the Internal
Revenue Service WellPoint will not be allowed to
deduct depreciation of the settlement and litigation
expenses.
But this just illustrates “that the appellee may, without
taking a cross-appeal, urge in support of a decree any
matter appearing in the record, although his argument may
involve an attack upon the reasoning of the lower court or an
insistence upon matter overlooked or ignored by it.” United
States v. American Railway Express Co., 265 U.S. 425, 435
(1924) (Brandeis, J.) (emphasis added); see also United
States v. New York Telephone Co., 434 U.S. 159, 166 n. 8
(1977); Ruth v. Triumph Partnerships, 577 F.3d 790, 796 (7th
Cir. 2009); Moss v. Kopp, 559 F.3d 1155, 1161 n. 6 (10th
Cir. 2009). To rule otherwise would lead to endless dis-
putes over whether arguments by an appellee ostensibly
defending the judgment were planting time bombs
under the appellant. The cross-appeal rule is not so vital
that it justifies haggling over borderline cases. Doubts
should therefore be resolved against finding that the
appellee’s failure to file a cross-appeal forfeited his right
to argue an alternative ground. See 15A Charles Alan
Wright, Arthur R. Miller & Edward H. Cooper, Federal
Practice and Procedure § 3904, pp. 198-209 (2d ed. 1992); see
also Pearl v. Keystone Consolidated Industries, Inc., 884
F.2d 1047, 1052-53 (7th Cir. 1989); Jordan v. Duff & Phelps,
Inc., 815 F.2d 429, 439 (7th Cir. 1987). Otherwise courts
16 No. 09-3163
will be sucked into inconclusive debates over whether
something said in a district court opinion, though not
preclusive by operation of res judicata or collateral
estoppel (or stare decisis, because district court decisions
do not have the force of precedent, e.g., Boyd v. Owen, 481
F.3d 520, 527 (7th Cir. 2007); Colby v. J.C. Penney Co., Inc.,
811 F.2d 1119, 1124 (7th Cir. 1987); NASD Dispute Resolu-
tion, Inc. v. Judicial Council, 488 F.3d 1065, 1069 (9th Cir.
2007)), nevertheless affects the rights of the appellee.
United States ex rel. Stachulak v. Coughlin, 520 F.2d 931,
937 (7th Cir. 1975), is a case that illustrates when the
filing of a cross-appeal is required. The appellee, confined
in the psychiatric ward of a state prison, brought a
federal habeas corpus proceeding to gain his freedom. The
district court found merit in his case and ordered him
released from the prison unless the state gave him
another commitment proceeding (in which the state’s
burden of proof would be greater) within 60 days. Without
cross-appealing, the appellee argued that the statute
under which he was confined was unconstitutional root
and branch. We held that he could not make this argu-
ment without filing a cross-appeal because if his
argument were accepted it would require his immediate
release and preclude a further commitment hearing
and thus change the judgment from conditional release
in 60 days to unconditional release immediately. In this
case, in contrast, the judgment does not require that
WellPoint be permitted to treat its settlement and litiga-
tion expenses as a depreciable (and therefore over time
a deductible) capital expenditure, and so the govern-
No. 09-3163 17
ment’s argument that they shouldn’t be so treated does
not challenge the judgment, as distinct from reasoning
by the Tax Court that might influence decision in a future
case but would require no alteration in the judgment in
the present one.
The strongest case that we’ve found (though not strong
enough) for requiring the appellee to file a cross-appeal
even though he isn’t seeking to alter the judgment is
EEOC v. Chicago Club, 86 F.3d 1423 (7th Cir. 1996). The
defendant prevailed in the district court and on appeal
argued an alternative ground for affirmance without
having filed a cross-appeal. We rejected the alternative
ground because the appellee did not have standing to
raise it, and then remarked that “the fact that the
[appellee] did not file a cross-appeal would also
complicate our ability to resolve [the] important issue
[raised by the appellee] even if standing were present.” Id.
at 1431-32. This was a dictum that even on its own
terms did not go so far as to state that the appellee
was required to file a cross-appeal.
And so we can address, at last, the merits of the gov-
ernment’s alternative ground. We can be brief, as the
ground is—groundless. 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. Commissioner v. Tufts,
461 U.S. 300, 307 (1983); Vukasovich, Inc. v. Commissioner,
790 F.2d 1409, 1413 (9th Cir. 1986); Brenner v. Commissioner,
62 T.C. 878, 883 (1975). But WellPoint always claimed (it
still claims) to have equitable title to the assets it ac-
18 No. 09-3163
quired. The expenses that it reasonably incurred to defend
that claim—the claim to own the assets free and clear—are
capital expenditures, not repayments.
A FFIRMED.
3-23-10