Cal-Farm Insurance v. United States
Opinion
Opinion
Schwartz, J.
MEMORANDUM AND ORDER
On November 16, 1984, plaintiff and defendant filed cross-motions for summary judgment. The court took the motions under submission and now renders its decision.
I. Factual Background
In 1975, plaintiff/taxpayer Cal-Farm Insurance Company claimed a deduction of $1,471,635 for a payment to its subsidiary Cal-Farm Life Insurance Company. The two companies were formed by the California Farm Bureau Federation, a non-profit organization, to provide insurance to its members at the lowest possible cost. The payment made in 1975 was for alleged overcharges of shared office expenses for the years 1968 through 1972. The deduction resulted in substantial tax refunds to plaintiff. After auditing plaintiffs 1975 tax return, defendant Internal Revenue Service (“I.R.S.”) disallowed the deduction and assessed tax deficiencies against plaintiff. Plaintiff paid the assessments and filed this suit for refund.
The allocation of common expenses between plaintiff and its subsidiary has undergone several changes during their history. Plaintiff was established by the California Farm Bureau Federation in 1948. Cal-Farm Life (“Life”) was incorporated in 1950 as an affiliate of…