Free Motion for Summary Judgment - District Court of Federal Claims - federal

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05-503 T (Judge Wheeler)

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

HOSPITAL SERVICE ASSOCIATION OF NORTHEASTERN PENNSYLVANIA,
Plaintiff,
v.

THE UNITED STATES,
Defendant.

APPENDIX B TO UNITED STATES' MOTION FOR SUMMARY JUDGMENT AND BRIEF IN SUPPORT THEREOF

EILEEN 1. O'CONNOR Assistant Attorney General

DAVID GUSTAFSON W.e. RAPP KAREN SERVIDEA Attorneys Justice Deparment (Tax) Federal Claims Section Court of P.O. Box 26

Ben Franlin Post Office Washington, D.C. 20044
(202) 616-3423 (202) 514-9440 (Fax)

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APPENDIX B TABLE OF CONTENTS
Page:

Exhibit
1

Description

Plaintiff s Answers to Defendant's First Set of Requests for Admission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Plaintiff s Answers to Defendant's First Set of
Interrogatories ............................................ B-8

2

3

Plaintiff s Answers to Defendant's Second Set of Requests for Admission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-30 Plaintiff s Answers to Defendant's Second Set of
Interrogatories ........................................... B-49

4

5

Letter of September 22, 2006, from Adam Feinberg to
Karen Servidea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-63

6
7
8

Excerpt from Plaintiff s 1991 Annual Statement. . . . . . . . . . . . . . . . . B-68
Excerpt from Plaintiff s 1992 Annual Statement. . . . . . . . . . . . . . . . . B- 78

Excerpt from Plaintiff s 1993 Annual Statement. . . . . . . . . . . . . . . . . B-92

9
10
11

Excerpt from Plaintiffs 1994 Annual Statement. . . . . . . . . . . . . . . . B-I05
Excerpt from Plaintiff s 1995 Annual Statement. . . . . . . . . . . . . . . . B-118

Excerpt from Plaintiffs Original Income Tax Return (Form 1120) for 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-129
Excerpt from Plaintiffs Original Income Tax Return (Form 1120) for 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-132
Excerpt from Plaintiffs Original Income Tax Retur (Form 1120) for 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-135

12

13

14

Excerpt from Plaintiffs Original Income Tax Return (Form 1120) for 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-138

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TABLE OF CONTENTS (CONTINUED)
Page:
15

Excerpt from Plaintiff s Original Income Tax Return (Form 1120) for 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-141

16

Excerpt from Plaintiffs Original Income Tax Return (Form 1120) for 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-144

17

Excerpt from Plaintiffs Original Income Tax Return (Form 1120) for 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-152
Excerpt from Ernst & Young Valuation Report
dated April 10, 1997 ..................................... B-157

18

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05-503 T
(Judge Wheeler)

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

HOSPITAL SERVICE ASSOCIATION OF NORTHEASTERN PENNSYLVANIA,
Plaintiff,
v.

THE UNITED STATES,
Defendant.

APPENDIX B TO UNITED STATES' MOTION FOR SUMMARY JUDGMENT AND BRIEF IN SUPPORT THEREOF
EILEEN 1. O'CONNOR Assistant Attorney General

DAVID GUSTAFSON w.e. RAPP KAREN SERVIDEA Attorneys Justice Department (Tax) Court of Federal Claims Section P.O. Box 26 Ben Franklin Post Offce Washington, D.C. 20044 (202) 616-3423 (202) 514-9440 (Fax)

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APPENDIX B TABLE OF CONTENTS
Page:

Exhibit
1

Description

Plaintiffs Answers to Defendant's First Set of Requests for Admission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1 Plaintiffs Answers to Defendant's First Set of
Interrogatories ............................................ B-8

2

3

Plaintiff s Answers to Defendant's Second Set of Requests for Admission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-30

4

Plaintiffs Answers to Defendant's Second Set of
Interrogatories ........................................... B-49

5

Letter of September 22, 2006, from Adam Feinberg to
Karen Servidea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-63

6

Excerpt from Plaintiffs 1991 Annual Statement. . . . . . . . . . . . . . . . . B-68
Excerpt from Plaintiff s 1992 Annual Statement. . . . . . . . . . . . . . . . . B-78

7
8

Excerpt from Plaintiff s 1993 Annual Statement. . . . . . . . . . . . . . . . . B-92

9
10
11

Excerpt from Plaintiff s 1994 Annual Statement. . . . . . . . . . . . . . . . B-I05
Excerpt from Plaintiff s 1995 Annual Statement. . . . . . . . . . . . . . . . B-118

Excerpt from Plaintiffs Original Income Tax Return (Form 1120) for 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-129 Excerpt from Plaintiffs Original Income Tax Return (Form 1120) for 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-132
Excerpt from Plaintiff s Original Income Tax Return (Form 1120) for 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-135 Excerpt from Plaintiff s Original Income Tax Return (Form 1120) for 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-138

12

13

14

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TABLE OF CONTENTS (CONTINUED)
Page:
15

Excerpt from Plaintiffs Original Income Tax Return (Form 1120) for 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-141 Excerpt from Plaintiffs Original Income Tax Return (Form 1120) for 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-144
Excerpt from Plaintiff s Original Income Tax Return (Form 1120) for 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-152
Excerpt from Ernst & Young Valuation Report
dated April 10, 1997 ..................................... B-157

16

17

18

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Defendant's Exhibit # 1

B-l

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IN THE UNITED STATES COURT OF FEDERA CLAIMS
) ) )

HOSPITAL SERVICE ASSOCIATION OF

NORTHEASTERN PENNSYLVAN,
Plaintiff,
v.

)
)
) Civil Action No. 05-503 T

) )
)

THE UNED STATES OF AMRICA,
Defendant.

) )
)

PLAINTIFF'S ANSWERS TO DEFENDAN'S FIT SET OF REOUESTS FOR ADMISSION
Pursuant to Rules 26 and 36 of the Rules of the United States Cour of

Federal Claims

("RCFC"), Plaintiff

Hospita Service Association of

Norteast

em Pennsylvana ("Plaintiff')
Requests for Admission as

answers Defendant the United States of America's First Set of

follows:
General Obiections
Requests"

Plaintiff

objects to the United States' First Set of

for Admssions to the extent

the United States seeks to impose burdens or requirements in excess of those imposed by the
RCFC. Plaintiff also objects to the United States' First Set of

Requests for Admssions on the

grounds that they are vague, overbroad, unduly burdensome, and not reasonably calculated to

lead to the discovery of admssible evidence.

Answers to Requests for Admission

Request for Admission No.1:
The Form 1120X Amended U.S. Corporation Income Tax Retu for the 1991 tax year,
attached to the Complaint as Exhibit C, was not filed withn thee year of

the date on which

plaintiff filed its original Form 1120 U.S. Corporate Income Tax Retu for the 1991 tax year.
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Answer to Request for Admission No.1:
Admitted.

Request for Admission No.2:
The Fonn 1120X Amended U.S. Corporation Income Tax Retu for the 1991 tax year,

the date on which plaintiff made any payments towards its income tax liabilty for the 1991 tax year.
attached to the Complaint as Exhibit C, was not filed with two years of

Answer to Request for Admision No.2:
Admitted.

Request for Admission No.3:
Plaintiff did not file a fonnal refud clai with the Internal Revenue Serice ("IR") for the 1993 tax year based on the losses described in paragrph 46 of the Complaint and the regular tax net operating loss described in paragraph 47 of the Complaint.

Answer to Request for Admission No.3:
Admitted. However, plaintiff did file an informal refud claim with the IR for the 1993 the Complaint and the regular tax net tax year based on the losses described in pargrph 46 of the Complait. operating loss described in pargraph 47 of

Request for Admission No.4:
Plaintiff did not file a formal refud clai with the IR for the 1994 tax year based on the
losses described in paragrph 55 of

the Complaint.

Answer to Request for Admision No.4:
Admitted. However, plaintiff did file an informal refud claim with the IRS for the 1994 tax year based on the losses described in paragraph 55 ofthe Complaint.

Reauest for Admission No.5:
Plaintiff did not fie a formal refud clai with the IR for the 1995 tax year based on the
losses described in paragrph 63 of

the Complaint.

Answer to Reauest for Admission No.5:

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Admitted. However, plaintiff did fie an informal refud claim with the IRS for the 1995 tax year based on the losses described in paragraph 63 of the Complaint.

Request for Admission No.6:
Plaitiffs origial Form 1120 federal income tax retu for the 1996 tax year did not
constitute a clai for refud.

Answer to Request for Admission No.6:
Admitted.

Request for Admission No.7:
The protest letter refered to in paragrph 74 of

the Complaint did not constitute a clai

for refud for the 1996 ta year.
Answer to Request for Admission No.7:
Denied. The protest letter referrd to in paragraph 74 of

the Complaint constituted an

informal claim for refud for the 1996 tax year.

Request for Admision No.8:
Plaitiffs original Form 1120 federal income tax retu for the 1996 tax year did not
disclose an overpayment.

Answer to Request for Admission No.8:
Admitted.

Request for Admission No.9:
Plaintiff did not make any payments towards its 1996 tax liability, other than an interest taxes revealed on plaintiffs original Fonn 1120

payment for failing to timely pay the amount of

federal income tax retu for the 1996 tax year, between the date on which plaintiff filed its

original Fonn 1120 federal income tax retu for the 1996 tax year and the date on which the complaint. plaitiff filed the protest letter refered to in paragraph 74 of

Answer to Request for Admission No.9:

Admtted. However, durg the IRS's examation process for the 1996 and 1997 tax years, the IR issued a parally agreed reprt on December 7, 1999, settg fort agreed and was entitled to a refud for an unagreed adjustments. Based on the agreed adjustents, Plaintiff
overassessment in tax, but unagreed adjustments for subscriber abandonment losses reduced the

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amount of

the agreed overasessment. At ths time, ifnot sooner, Plaintiff

became entitled to a

refud for subscriber intangible abandonment losses in 1996 and 1997

Request for Admission No. 10:

At the time plaitiff filed the protest letter referred to in paragrph 74 of the Complaint,
plaintiff

had not paid the additional ta for the 1996 tax year that was assessed agaist plaintiff

durng the IRS's examination process due to the disallowance of plaintiff s claimed deductions
for the losses described in paragraph 71 of

the Complait.

Answer to Request for Admission No. 10:

Denied. At the time plaintiff fied the protest letter, the IRS had issued a parially agreed report setting forth agreed and unagreed adjustments. Based on the agreed adjustments, Plaitiff was entitled to a refud for an overassessment in tax, but unagree adjustments for abandonment
losses reduced the amount of the protest letter, plaintiff the agreed overassessment. Therefore, at the time the plaintiff

fied

had overaid its tax and was entitled to a refud for subscrber

intangible abandonment losses.
Request for Admission No. 11:
To the extent that plaintiffs original Form 1120 federa income tax retu for the 1997

tax year constituted a claim for refud based on deductions for the losses described in paragrph the Complaint, such claim for refud was granted and paid by defendant though the 79 of
issuance ofa credt on April

15, 1998.

Answer to Request for Admission No. 11:
Denied. Plaitiff does not contend that its original Form 1120 federal income tax retu

for the 1997 tax year constituted a clai for refud based on deductions for the losses described in paragraph 79 of the Complaint.
Request for Admission No. 12:
The protest letter referred to in paragrph 82 of

the Complaint did not constitute a clai

for refud for the 1997 tax year.

Answer to Request for Admission No. 12:
Denied. The protest letter referred to in pargraph 82 of the Complaint constituted an

infonnal claim for refud for the i 997 tax year.
Request for Admission No. 13:

4

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described in paragraph 79 of

The IR did not disallow plaintiff's deductions for the 1997 tax year based on the losses the Complait until after the IRS issued a credit for the full amount

of overpayment disclosed by plaintiffs original Fonn 1120 income tax retu for the 1997 ta year.
Answer to Request for Admission No. 13:

Admitted.
Request for Admission No. 14:
Plaitiff did not make any payments towards its 1997 ta liability between April

15,

1998, and the date on which plaintiff fied the protest letter referred to in pargrph 82 of the

Complait.
Answer to Request for Admission No. 14:

Admitted. However, see Answer to Request for Admission No.9.

Request for Admission No. 15:
At the time plaintiff plaintiff filed the protest letter referred to in paragraph 82 of

the Complait,

had not paid the additional tax for the 1997 ta year that was assessed agaist plaintiff

durng the IRS's examination process due to the disallowance of for the losses describe in pargrph 79 of

plaintiffs claied deductions
the Complait.

Answer to Request for Admission No. 15:
Denied. See Anwer to Request for Admssion No. 10.
Request for Admission No. 16:

Document US406 though US407, attached hereto, is a tre and authentic copy of a Fonn by IRS examer John CG-4549-A, Income Tax Examination Changes, issued to plaintiff
Gorman, on December 7, 1999.

Answer to Request for Admission No. 16:

Admitted.

.l
. ck H. Robinson
5

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MILER & CHEV ALlER CHATERED 655 Fifteenth Stret, N.W.
Suite 900
Washigton, D.C. 20005

(202) 626-5800

(202) 628-0858 (facsimle)
Counsel of Record for Plaintiff

O/Counsel;
Clarence T. Kipps, Jr.

Mara O. Jones Adam P. Feinberg MILLER & CHEV ALlER CHATERED
655 Fifteenth Street, N.W. Suite 900
Washigton, D.C. 20005

(202) 626-5800 (202) 628-0858 (facsimile)
Dated: March 20, 2006

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Defendant's Exhibit # 2

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IN THE UNITED STATES COURT OF FEDERA CLAIMS
) )

HOSPITAL SERVICE ASSOCIATION OF

NORTHASTERN PENNSYL V AN,
Plaintiff,
v.

)
)
)
) Civil Action No. 05-503 T

)
)

THE UND STATES OF AMRICA,
Defendant.

)

)
)
)

PLAINTIFF'S ANSWERS TO DEFENDANT'S

FIRST SET OF INTRROGATORIS
Pursuant to Rules 26 and 33 ofthe Rules of the United States Cour of

Federal Claims

("RCFC"), Plaintiff

Hospital Service Association of

Norteast

em Pensylvana ("Plaintiff')
Interogatories as follows:

answers Defendant the United States of America's First Set of

GeneralObiections
1. Plaintiff objects to the United States' First Set of Interrogatories to the extent the

United States seeks to impose burdens or requirements on Plaintiff in excess of those imposed by
the RCFC.
2. Plaintiff objects to the United States' First Set of

Interrogatories on the grounds

that they exceed 25 in number including all discreet subpars.
3. Plaintiff

reserves the right to supplement its answers to the United States' First Set

of Interrogatories as appropriate.

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Answers to Interroeatories

Interroeatorv No.1:
If plaintiff responds with anytng but an unequivocal admssion to any request contaed

in Defendant's Requests for Admssions-Set No. I:
(a) Quote the phrase, word, or words that plaintiff does not admit;

(b) State in detail each fact that (in plaitiff's view) supports the refual to admt the

clause, phrase, word, or words listed in response to Interrogatory l(a), identifyg
all persons who have knowledge of each such fact and describing all documents

that support each such fact; and
(c) If plaintiff does not agree with the defendant's statement of the subject of

the

requested admission, fully state plaintiffs view of

the facts, and separtely set
relies to support its point of

forth the evidence upon which plaitiff

view.

Answer to Interroeatorv No.1:

Plaintiff objects to ths Interrogatory on the grunds that it is vague, overbroad, unduly
burdensome, not reasonably calculated to lead to the discover of admssible evidence, and

uneasonably cumulative and duplicative of other discover requests. Plaintiff also objects to
this Interrogatory on the grounds that it by itself exceeds the 25 interogatories (including discreet

subpars) permitted by RCFC 33(a). Subject to and without waiving its objections, Plaintiff
answers as follows. Where applicable, and not objectionable on the grounds stated above,
Plaitiff has explaied the basis of its denials in its Anwer to Defendant's First Set of

Requests

for Admission, and incorporates those answers herein.

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Interroeatorv No.2:
State all facts upon which plaintiff

relies to support its allegation that the Form 1120X

Amended U.S. Corporation Income Tax Retu for the 1991 tax year, attached to the complait as
Exhbit C, was "tiely filed" as alleged in pargrh 32 of

the Complait.

Answer to Interroeatorv No.2:
None. Plaintiff is withdrawing Count One from the Complaint.

Interroeatorv No.3:
State all facts upon which plaintiff relies to supprt its allegations contaied in pargraphs
33 and 41 of the Complaint that plaintiff

fied an amended refud clai for the 1991 and 1992

tax years on or about June 30, 1997.

Answer to Interroe:atorv No.3:
Plaitiff objects to ths Interrogatory on the grounds that it is vague, overbroad, unduly
burdensome, and uneasonably cumulative and duplicative of other discovery requests. Subject
to and without waiving its objections, Plaitiff anwers as follows.

An opening conference for the IRS audit of the 1987 though 1994 tax yea, held on

Marh 26, 1997, was attended by John Celot, the IRS examnig agent; John Gorman, an IR

insurance specialist with the examination division; Walt Kian, the IRS case manger; Ken

Suchoski, who was then the Plaintiffs contrller; and Dave Bobonski, who was then Plaitiffs
tax manager. At ths conference, the attendees discussed the statu of

the fial Ernst & Young
Plaitiff

appraisals of

the subscriber contrcts and the assembled work force of

as of Janua 1,

1987, and the final amounts to be claimed for intangibles abandonments, including abandonment
of

subscriber contrcts, from 1987 through 1995.

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Ernst & Young finalized the valuation of

Plaintiff's subscriber intangibles and the

determination of

subscriber intangible losses incured from 1987 through 1995 and provided the
Ernst & Young

valuation to Plaintiff on May 23, 1997, with a cover letter from Lee C. Russell of

to Dave Bobonski. On June 27, 1997, Ernst & Young provided to Ken Suchoski, with a cover

letter from i. Lee Holt of Ernt & Young, a worksheet for refud clais filed protectively
though 1992 with revised calculations based on the fmal valuation. This worksheet shows the
tax refud due for the i 991 and 1992 ta year based on the revised deductions for subscriber

intangibles abandonments for the years 1991 through 1992 that are equal to the subscriber

intangible losses for those year as set fort in the Ernst & Young final valuation reort. The
worksheet also shows the deduction amounts for subscriber intangibles abandonments for the

1993 through 1995 tax year based on the subscriber intagible losses for those year as set fort
in the Ernst & Young fial valuation report. These adjustments are provided under the heading
"Explanation for Revised Amended Retus." This worksheet was provided with the Complaint

as the first two pages of Exhibit D.
Either Ken Suchoski or Bil Smolok, a former controller of Plaitiff

who was workig

par time for Plaintiff

at that time, provided ths worksheet to John Celot, the IR agent, on or

about June 30, 1997. The IR received ths worksheet as demonstrated by the fact that the
worksheet was included among the documents produced by the governent to plaintiff on

Februar 14,2006, at US547 to US548. Ths worksheet was also attached to an internal IR
memorandum from John Gorman to Walt Kian dated November 4, 1997, which indicates that
John Gorman met with John Celot on November 3 and states, "The abandonment issue is present
in ths case via amended tax retus. Once the appraisal is reviewed, we can make our proposed

adjustments as in other Blue audits." The notice of

proposed adjustment issued to Plaintiff

by

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the IRS on October 18, 1999, proposed adjustments for the year 1987 though 1997 that were

equal to the deductions for the subscriber intangibles abandonments set fort in the worksheet.
The notice of proposed adjustment indicates that the abandonment deductions were taken on
amended tax retus.

Interro2atorv No.4:
State all facts upon which plaintiff relies to support its allegations contaed in parhs
33 and 41 of the Complait tht the amended clai for the 1991 and 1992 ta year tht

plaitiff

allegedly filed on or abut June 30, 1997, included deductions for losses desbed in pargrhs 26
and 38 of the Complait and the net opertig loss desbe in pargrhs 31 and 39 of

the

Complait.

Answer to Interro2atorv No.4:
Plaintiff objects to ths Interogatory on the grounds that it is vague, overbroad, unduly
burdensome, and uneasonably cumulative and duplicative of other discovery requests. Subject
to and without waiving its objections, Plaintiff answers as follows. The first page of

the

worksheet provided with the Complait as the fit two pages of Exhibit D shows, in a line under
the heading "Explanation for Revised Amended Retu," the decrease in net opertig losses

due to the subscriber intangibles abandonment deduction for each year from 1987 thugh 1995.
In each year, the decrease in net operating losses due the subscriber intangibles abandonment is

equal to the calculated abandonment loss for that year provided in the Ernst & Young final
valuation. In another line under the heading "Explanation for Revised Amended Retus," the

net operating loss adjustment due to revisions, including adjustments due to the subscriber
intagible abandonments, is shown. At the bottom of

the page, the total revised amended

adjustments, which includes the adjustments due to the subscriber intagible abandonment

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deductions, and the revised amended taxable income for each year are set fort. The second page
of the workpapers shows the tax refud due for each year from 1991 to 1997 based on the revised

amended taxable income set fort on the fit page of the workpapers.

Interrof!atorv No.5:
State all facts upon which plaintiff relies to support its allegations contaied in
paragrphs 33 and 41 of

the Complaint that Exhbit D ofthe Complait constituted an amended

claim for refud for the 1991 and 1992 tax year.

Answer to Interrof!atorv No.5:
Plaintiff objects to ths Interrogatory on the grounds that it is vague, overbroad, unduly
burdensome, and uneasonably cumulative and duplicative of other discover requests. Subject
to and without waiving its objections, Plaitiff answers as follows. Plaintiff

relies on the facts

set fort in the Answer to Interogatory No.3.

Interrof!atorv No.6:
State all facts upon which plaintiff relies to support its allegation contained in Paragrph
48 of the Complaint that the plaintiff

filed a refud claim for the 1993 tax year on or about June

30, 1997.

Answer to Interroeatorv No.6:
Plaintiff objects to ths Interrogatory on the grounds that it is vague, overbroad, unduly

burdensome, and uneasonably cumulative and duplicative of other discovery requests. Subject
to and without waiving its objections, Plaintiff anwers as follows.
An opening conference for the IRS audit of the 1987 though 1994 tax year, held on

March 26, 1997, was attended by John Celot, the IRS examg agent; John Gorman, an IR

insurance specialist with the examation division; Walt Kirwan, the IR case manager; Ken

6

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Suchoski, who was then the Plaintiff's contrller; and Dave Bobonski, who was then Plaintiffs
tax manager. At ths conference, the attendees discussed the status of

the final Ernt & Young

apprasals of the subscriber contrcts and the assembled work force of Plaitiff as of Janua 1,

1987, and the fial amounts to be claied for intangibles abandonments, including abandonment

of subscriber contracts, from 1987 though 1995.
Ernst & Young fialized the valuation of

Plaitiffs subscriber intangibles and the

determnation of subscriber intangible losses incured from 1987 through 1995 and provided the
valuation to Plaintiff on May 23, 1997, with a cover letter from Lee C. Russell of Ernst & Young
to Dave Bobonski. On June 27, 1997, Ernst & Young provided to Ken Suchoski, with a cover

letter from i. Lee Holt of Ernst & Young, a worksheet setting fort the tax refud due for the

1993 though 1995 tax year based on deductions for subscriber intagibles abandonments for
the years 1993 though 1995 that are equal to the subscriber intangible losses for those year as
set fort in the Ernt & Young final valuation report. These adjustments are provided under the

heading "Explanation for Revised Amended Retus." Ths worksheet was provided with the
Complaint as the first two pages of

Exhibit D.
Plaitiff

Either Ken Suchoski or Bil Smo10k, a former controller of

who was workng

par time for Plaintiff at that time, provided ths worksheet to John Celot, the IR agent, on or
about June 30, 1997. The IRS received ths worksheet as demonstrated by the fact that the
worksheet was included among the documents produced by the goverent to plaitiff on
Februar 14, 2006, at US547 to US548. Ths worksheet was also attached to an interal IR

memorandum from John Gorman to Walt Kian dated November 4, 1997, which indicates that
John Gorman met with John Celot on November 3 and states, "The abandonment issue is present
in ths case via amended tax retus. Once the apprasal is reviewed, we can make our proposed

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adjustments as in other Blue audits." The notice of

proposed adjustment issued to Plaitiffby

the IRS on October 18, 1999, proposed adjustments for the years 1987 though 1997 that were

equal to the deductions for the subscriber intagibles abandonments set fort in the worksheet.
The notice of proposed adjustment indicates that the abandonment deductions were taken on
amended tax retus.

On December 9, 1999, the IR issued a Letter 569 Preliminar Clai Disallowance for
the year 1988 though 1995. The IRS attached to that letter a Form 3363 Acceptance of

Proposed Disallowance of Claim for Refud or Credit, which indicated that the clais

disallowed for 1993 though 1995 were informal claims. On December 9, 1999, the IRS issued
a parially agreed report for the years 1993 though 1995 for items other than abandonment
losses, which stated "subsequent to the processing of ths parial agreeent, your protest of

the

Service's full disallowance of

your infonnal clais for abandonment losses wil be sent to

Appeals along with the formal claims disallowances for 1988 thugh 1992." On or about
Januar 5,2000, plaintiff

filed a protest covering the years 1987 through 1997 disputing the

disallowance of claimed deductions for losses on abandonment of subscriber contrcts and noted
therein that Plaintiff

had fied informal refud clais with the Internal Revenue Service's

Revenue Agent for the years 1993 though 1995 durg the coure of examination. The IR

issued formal notices of clai disallowance for each of

the years 1991 though 1995 on April

27,

2001.

Interro2atorv No.7:
State all facts upon which plaintiff relies to support its allegation contained in paragraph
48 of the Complaint that the clai for the 1993 tax year that plaintiff allegedly filed on or about

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June 30, 1997, included deductions for the losses described in paragraph 46 of

the Complaint and
the Complaint.

the net operating losses described in pargraph 47 of

Answer to Interroeatorv No.7:

Plaintiff objects to ths Interogatory on the grunds that it is vague, overbroad, unduly
burdensome, and uneasonably cumulative and duplicative of other discover requests. Subject

to and without waiving its objections, Plaintiff answer as follows. Plaintiff relies on the facts

set forth in the Answer to Interrgatory No.4.
Interroeatorv No.8:
State all facts upon which plaintiff

relies to support its allegation contained in pargrh
the Complaint constituted a clai for refud for the 1993

48 of

the Complaint that Exhibit D of

tax year.

Answer to Interroeatorv No.8:

Plaitiff objects to ths Interogatory on the grunds that it is vague, overroad, unduly
burdenome, and uneaonably cumulative and duplicative of other discovery requests. Subject
to and without waiving its objections, Plaitiff

anwers as follows. PlaintiffrelIes on the facts

set forth in the Answer to Interrogatory No.6.

Interroeatorv No.9:
State all facts upon which plaitiff relies to support its allegation contained in paragrph
56 of the Complaint that plaintiff

fied a refud clai for the 1994 tax year on or about June 30,

1997.

Answer to Interroeatorv No.9:

Plaintiff objects to ths Interogatory on the grounds that it is vague, overroad, unduly
burdensome, and uneasonably cumulative and duplicative of other discovery requests. Subject

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to and without waiving its objections, Plaitiff answers as follows. Plaitiff relies on the facts
set forth in the Answer to Interrogatory No.6.
Interro2atorv No. to:

State all facts upon which plaitiff relies to support its allegation contained in paragraph
56 of the Complaint that the claim for the i 994 tax year tht plaintiff allegedly filed on or about
June 30, 1997, included deductions for the losses described in paragrph 55 of

the Complait.

Answer to Interro2atorv No. 10:
Plaitiff objects to ths Interrgatory on the grounds that it is vague, overbroad, unduly

burdensome, and uneasonably cumulative and duplicative of other discovery requests. Subject

to and without waiving its objections, Plaintiff anwers as follows. Plaintiff relies on the facts
set fort in the Answer to Interrgatory No.4.
Interroeatorv No. 11:

State all facts upon which plaitiff relies to support its allegation contained in paragrph
56 of the Complaint that Exhibit D of the Complaint constituted a claim for refud for the 1994

tax yea.
Answer to Interr02atorv No. 11:

Plaintiff objects to ths Interogatory on the grounds that it is vague, overbroad, unduly
burdensome, and uneasonably cumulative and duplicative of other discover requests. Subject

to and without waiving its objections, Plaitiff answer as follows. Plaintiff relies on the facts
set fort in the Answer to Interrogatory No.6.
Interro2atorv No. 12:

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State all facts upon wmch plaintiff relies to support its allegation contaied in paragrph
64 of the Complaint that plaintiff fied a refud claim for the 1995 tax year on or about June 30,

1997.

Answer to Interrol!atorv No. 12:
Plaintiff objects to ths Interrogatory on the grounds that it is vague, overbroad, unduly

burdensome, and uneasonably cumulative and duplicative of other discovery requests. Subject
to and without waiving its objections, Plaintiff answer as follows. Plaitiff

relies on the facts

set fort in the Answer to Interrogatory No.6.
Interrol!atorv No. 13:

State all facts upon which plaintiff relies to support its allegation contaed in paragraph

64 of the Complaint that the claim for the 1995 ta year that plaintiff allegedly fied on or about

June 30, 1997, included deductions for the losses described in paragrph 63 of the Complait.
Answer to Interroeatorv No. 13:

Plaintiff objects to ths Interrogatory on the grunds that it is vague, overbroad, unduly
burdensome, and uneasonably cumulative and duplicative of other discovery requests. Subject

to and without waivig its objections, Plaitiff anwers as follows. Plaitiff relies on the facts
set fort in the Answer to Interrgatory No.4.
Interroeatorv No. 14:

State all facts upon which plaintiff relies to support its allegation contaied in pargraph

64 of the Complaint that Exhbit D of the Complait constituted a claim for refud for the 1995
tax year.

Answer to Interroeatorv No. 14:

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Plaintiff objects to ths Interrogatory on the grounds that it is vague, overbroad, unduly
burensome, and uneasonably cumulative and duplicative of other discover requests. Subject

to and without waiving its objections, Plaintiff answers as follows. Plaintiff relies on the facts

set fort in the Answer to Interrogatory No.6.
IDterr02atorv No. 15:

State all facts upon which plaitiff relies to support its allegation contaied in paragraph
72 of

the Complait that plaintiff claied deductions based on the losses described in paragraph

71 of

the Complait on plaintiffs origial Form 1120 federal income tax retu for the 1996 tax

year.

Answer to IDterroeatorv No. 15:

Plaintiff objects to this Interrogatory on the grounds that it is vague, overbroad, and

unduly burdensome. Subject to and without waiving its objections, Plaintiff answers as follows.
Plaitiff

relies on the fact that Statement 55 (Combined Deductions Not on Books) ofthe

Schedule M-1 attached to Plaitiffs original Form 1120 federal income tax retu for the 1996

year lists a deduction of

$433,020 for Abandonment Loss - Contracts/orkforce.

Interroeatorv No. 16:

If

you contend that plaitiffs original Form 1120 federal income tax retu for the 1996

year constituted a claim for refud based on the losses described in paragraph 71 ofthe
Complaint, state the basis of your contention.
Answer to Interroeatory No. 16:

Plaintiff does not so contend.
Interroeatorv No. 17:

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If

you contend that the protest letter refered to in paragraphs 74 and 82 of

the Complaint

constituted a claim for refud based on the losses described in paragrphs 71 and 79 of

the

Complaint, state the basis of your contention.
Answer to Interroeatorv No. 17:

The protest letter referred to in paragraphs 74 and 82 ofthe Complaint constituted an

informal claim for refud based on the losses described in paragrphs 71 and 79 of the
Complaint. The protest letter included an itemized schedule of

the loss deductions for

abandoned subscriber contrcts for the tax yeas 1987 though 1997. The protest letter set forth
computations of tax due or overpaid on unagreed adjustments, including subscriber
abandonments, for 1987 thugh 1997 and indicated that plaitiff

had overpaid tax on ungreed

adjustments, including the adjustments for the subscriber abandonment deductions, for 1996 and
1997. The protest letter set fort the basis of

the plaintiffs claims for refud based on the losses

on subscriber abandonments.

The protest letter was submitted to the IR with a cover letter from Peter Wood, Director
of

Taxes at Plaintiff, to Mar Rosner, Internal Revenue Serice, indicating that the tax

computations in the protest letter were for the refud of ta due to disputed deductions, includig
the claied deductions for losses on abandonment of subscriber contracts. At the conclusion of

the IRS's examination of

Plaitiffs 1996 and 1997 tax yeas, Marhall Lyons, IR Techncal

Coordinator, sent plaintiff a letter dated March 4, 2001, stating that the IRS had disallowed

plaitiffs abandonment losses on the retus and attached a Letter 569 Prelimar Clai
Disallowance indicating full disallowance of

plaitiffs claim in the amount of$147,227 for 1996

and full disallowance of

plaintiffs claim for $57,555 for 1997. On Apri127, 2001, the IRS

issued a formal notice of claim disallowance for plaintiff s claim in the amount of $147,227 for

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the 1996 tax year and a formal notice of clai disallowance for plaitiffs claim in the amount of

$57,555 for the 1997 tax year.
Interroeatorv No. 18:

If you contend that, at the time plaitiff filed the protest letter refered to in paragraph 74
ofthe Complaint, plaintiff

had paid the additional tax for the 1996 tax year assessed agaist

plaintiff durng the IRS's examation process due to the disallowance of plaitiffs claied

deductions for the losses described in pargrph 71 of

the Complait, state the basis of

your

contention.

Answer to Interroeatorv No. 18:

At the time plaintiff filed the protest letter, the IRS had issued a parally agreed report
setting fort agreed and unagreed adjustments for the 1996 tax year. Based on the agreed

adjustments, Plaintiff

was entitled to a refud for an overasessment in tax, but unagreed
the

adjustments for abandonment losses, including losses described in pargraph 71 of

Complaint, reduced the amount of

the agreed overasessment. Therefore, at the time the plaintiff
had overpaid its tax and was entitled to a refud for subscriber

filed the protest letter, plaintiff

intangible abandonment losses.
Interr02atorv No. 19:

State all facts upon which plaintiff relies to support its allegation contaned in paragrph

80 of the Complait that plaintiff claimed deductions based on the losses described in paragraph
79 of

the Complait on plaintiff s origial form 1120 federa income ta ret for the 1997 ta

year.
Answer to Interr02atorv No. 19:

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Plaintiff objects to this Interrogatory on the grounds that it is vague, overbroad, and

unduly burdensome. Subject to and without waiving its objections, Plaitiff answers as follows.
Plaintiff relies on the fact that Statement 44 (Combined Deductions Not on Books) of

the

Schedule M-I attached to Plaitiffs original Form 1120 federal income tax retu for the 1997

year lists a deduction of

$

164,443 for Abandonment Loss - Contrctsorkforce.

IDterroeatorv No. 20:

If

you contend that plaintiffs origial Form 1120 federal income ta retu for the 1997

year constituted a claim for refud based on the losses described in paragrh 79 of

the

Complaint and that defendat did not grt and satisfy such claim by issuing a credit to plaitiff
in the amount of $244,406 on April 15, 1998, state the basis of

your contention.

Answer to Interroe:atorv No. 20:

Plaintiff objects to ths Interrogatory on the grounds that it is vague, overbroad, and

unduly burdensome. Subject to and without waivig its objections, Plaintiff answer as follows.
Plaintiff does not contend that its original Form 1120 federal income ta retu for the 1997 year
constituted a claim for refud based on the losses described in paragrph 79 of

the Complait.

Because Plaintiff does not contend tht its original Form 1120 federal income tax retu for the
1997 year constituted a claim for refud based on the losses described in pargraph 79 of

the

Complaint, it does not contend that defendant did not grant and satisfy such clai by issuig a
15, 1998.

credit to plaintiff

in the amount of

$244,406 on April

IDterroeatorv No. 21:

If

you contend that, at the time plaitiff filed the protest letter referred to in pargraph 82

of

the Complaint, p1aitiffhad paid the additional tax for the 1997 tax yea that was assessed

against plaintiff durg the IR's examation process due to the disalowance ofplaitifls

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claimed deductions for the losses described in paragraph 79 of

the Complaint, state the basis of

your contention.

Answer to Interro!!atorv No. 21:
At the time plaitiff filed the protest letter, the IRS had issued a parially agreed report
settng forth agreed and unagreed adjustments for the 1997 tax year. Based on the agreed

adjustments, Plaintiffwas entitled to a refud for an overasessment in tax, but unagreed
adjustments for abandonment losses, including losses described in pargrph 79 of

the

Complaint, reduced the amount of

the agreed overassessment. Therefore, at the time the plaitiff

filed the protest letter, plaintiff

had overpaid its ta and was entitled to a refud for subscriber

intangible abandonment losses.
Interro!!atorv No. 22:

If you contend that plaitiff would have been entitled to a refud if the IR had allowed
plaintiffs claimed deductions for the losses described in pargraphs 71 and 79 of

the Complait
the Complaint,

at the time plaintiff

filed the protest letter refered to in paragrphs 74 and 82 of

state the basis of

your contention.

Answer to Interro!!atorv No. 22:
At the time plaitiff fied the protest letter, the IRS had issued a parially agreed reort
setting fort agreed and unagreed adjustments for the 1997 tax year. Based on the agreed

adjustments, Plaintiff

was entitled to a refund for an overasessment in ta, but unagreed

adjustments for abandonment losses, including losses described in pargraphs 71 and 79 of

the
the IR had allowed plaitiffs

Complaint, reduced the amount of

the agreed overassessment. If

claimed deductions for the losses described in paragrphs 71 and 79 of

the Complait at the time

plaintiff

filed the protest letter, plaintiff

would have been entitled to a refud for the full amount

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of the overassessment due to the agreed adjustments, which would not have been reduced by the

amounts claimed as abandonment losses described in paragrphs 71 and 79 of the Complaint.
Interroe:atorv No. 23:

With respect to the first page of exhibit D of

the Complait, state the following:

(a) the person or entity that created the page;

(b) the date on which the page was created;
(c) the purose for which the page was created; and

(d) what the person or entity did with the page after its creation, including any acts of
transmitting the page to other person or entities, and the dates of such actions.
Answer to Interroe:atorv No. 23:

(a) The page was prepared by Ernst & Young, either by or under the direction ofE&Y
tax senior manager i. Lee Holt.

(b) The page was created after May 23, 1997, and on or before June 27, 1997.
(c) Ernst & Young completed a valuation of

Plaintiffs subscriber intangibles and the

losses incured from 1987 though 1995 and provided the valuation to Plaintiff on May

23, 1997. Together with the second page of exhbit D, the first page of Exhbit D was
created to show the ta refuds due to Plaintiff

based on th May 1997 valuation. For

1991 and 1992, the amounts claimed on the worksheet were adjustments to the amounts
claied on the fonns 1120X previously filed for those year. For 1993 though i 995, the

worksheet set fort the total amounts claimed as deductions relating to Plaintiffs
subscriber intangibles losses for 1993 though 1995.

(d) Ernt & Young provided the page to Ken Suchoski, who was then the controller of

Plaintiff on June 27, 1997. Either Ken Suchoski or Bil Smolok, who was then a former

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controller of

Plaitiff

workig par-time, provided the page to John Celot, who was the

Internal Revenue Service examinig agent for the audit ofPlaitifIs 1993 and 1994 ta

years, on or about that date.
Interroeatorv No. 24:

With respect to the second page of exhbit D of

the Complaint, state the followig:

(a) the person or entity that created the page;

(b) the date on which the page was created;
(c) the purose for which the page was created; and

(d) what the person or entity did with the page after its creation, including any acts of
transmittng the page to other person or entities, and the dates of such actions.
Answer to Interroeatorv No. 24:
See response to Interrogatory No. 23.
Interroeatorv No. 25:

With respect to the th page of exhbit D of

the Complait, state the following:

(a) the peron or entity that created the page;
(b) the date on which the page was created;
(c) the purose for which the page was created; and

(d) what the person or entity did with the page afer its creation, including any acts of
transmitting the page to other person or entities, and the dates of such actions

.Answer to Interrol!atorv No. 25:
(a) To the best ofPlaintifrs knowledge, IRS Valuation Specialist, David M. Mielcarek,

No. 23-02935 prepared ths page.

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(b) The pa¡e is date October 18, 1999. To the be of

Plaitiffs knowled tbt is the

date the page was crte "
Plaiti of

(c) To the best of

Plaintiffs knowlede, the page waS crted to notfy

th

lR~s prsed adjustments to plantitrs inome to be includ in a Reenue Agent

Re reate to plaintiffs ta ye 1987 thugh 1997 aid to reuest th plaiti
fush as soon as possble any

addtional infortion tht would alte or reer the

proposal.
(d) Plaintiff reived ths page 011 or about Octber is, 1999, in the cour of

the IR

~amintion press.

OATH TO ANSWERS TO INTERRnGATORIS

I declae unde pety ofpeiui tht the forcgoin Platifrs Anwers to Defent's
Fir Set ofIntcrgatories ar tre an cot to the best ormy laowlede, infotion, and

~

p Woo

~ ~.DU

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Respectfully submitted,

ÂFr erck H. Robinson

--

MI ER & CHEV ALlER CHATERED
655 Fifteenth Street, N.W. Suite 900 Washington, D.C. 20005 (202) 626-5800 (202) 628-0858 (facsimile)
Counel of

Record for Plaitiff

Of Counsel: Clarence T. Kipps, Jr.

Mara O. Jones Adam P. Feinberg

MILER & CHEVALIER CHTERED
655 Fifteenth Street, N.W. Suite 900 Washington, D.C. 20005 (202) 626-5800 (202) 628-0858 (facsimile)

Dated: Marh 20, 2006

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CERTIFICATE OF SERVICE
I hereby cerify that I have this 20th day of March, 2006, caused a copy of the foregoing

PLAIIFF'S ANSWERS TO DEFENDAN'S FIRST SET OF INERROGATORIS to be
served by U.S. Mail and facsimle upon the followig:

Karen E. Servdea, Esquire

United States Deparent of Justice
Tax Division

Federal Claims Section P.O. Box 26
Cour of

Ben Frain Station
Washington, DC 20044 (202) 514-9440

~ lV

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Defendant's Exhibit # 3

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS.
) )

HOSPITAL SERVICE ASSOCIATION.OF NORTHEASTERN PENNSYLVANIA,
Plaintiff,
v.

)
)

)
) Civil Action No. 05-503 T

THE UNITED STATES OF AMERICA,
Defendant.

) Judge Thomas C. Wheeler ) )

)
) )

PLAINTIFF'S ANSWERS TO DEFENDANT'S SECOND SET OF REOUESTS FOR ADMISSION
Pursuant to Rules 26 and 36 of the Rules of the United States Cour of

Federal Claims

("RCFC"), Plaintiff

Hospital Service Association of

Northeastern Pennsylvania ("Plaintiff')
Requests for Admission as

answers Defendant the United States of America's Second Set of

follows:
General Obiections

Plaintiff objects to the United States' Second Set of

Requests for Admissions to the
those imposed by

extent the United States seeks to impose burdens or requirements in excess of

the RCFC. Plaintiff also objects to the United States' Second Set of Requests for Admissions on
the grounds that they are vague, overbroad, unduly burdensome, and not reasonably calculated to
lead to the discovery of admissible evidence.

Answers to Requests for Admission

Request for Admission No.1:
Plaintiff has never capitalized the costs associated with creating healthcare coverage contracts.

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Answer to Request for Admission No.1:
Admitted.

Request for Admission No.2:
In eah of the yea 1987 thug 1997, plaitiff incur substtial cost in crtig, or

facilitatig the cretion of, heathcae coverae contrts.

Answer to Request for Admission No.2:
Admitted.

Request for Admission No.3:
The expenditus plaitiff made in the yea 1987 thoug 1997 to create, or faciltate the creation of, healthcare coverage contracts were not limited to expenditures for advertising
and other sellng expenses.

Answer to Request for Admission No.3:
Plaintiff objects to this Request on the grounds that the terms "create, or faciltate the

creation of, healthcare coverage contracts" and "sellng expenses" are vague and undefined

Subject to these objections, Plaintiff answers as follows. Admtt.

Request for Admission No.4:

The expenditus plaitiff mae in the yea 1987 thug 1997 to crte, or facilita the
creation of, heathca coverage contrcts included payments to thrd paries for activities that helped

plaintiff determine what rates to charge prospective subscribers.

Answer to Request for Admission No.4:
Admitted.

Request for Admission No.5:
plaintiffs internal costs (e.g., employee salares and benefits) in the years A portion of 1987 through 1997 was attibutable to creating, or facilitating the creation of, healthcare coverage contracts.

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Answer to Request for Admission No.5:
Admitted.

Request for Admission No.6:
A portion of the salares and benefits paid by plaintiff to certn of its employees in the years 1987 though 1997 was attributable to time spent reviewing applications for heathca coverae

contrts by prosptive subscribers.

Answer to Request for Admission No.6:
Admitted.

Request for Admission No.7:
A portion of the salares and benefits paid by plaintiff to cert of

its employees in the yeas

1987 though 1997 was attbutable to time spent investgatig and/or anyzg the claims history of

prospective subscribers.

Answer to Request for Admission No.7:
Admitted.

Request for Admission No.8:
A portion of the salares and benefits paid by plaintiff

to certn ofits employees in the yea

1987 though 1997 was attbutable to time spnt setting rates for healthcare coverage contrts for
prospective subscribers.

Answer to Request for Admission No.8:
Admitted.

Request for Admission No.9:
A porton of the salares and benefits paid by plaintiff to cert of

its employees in the yea

1987 thug 1997 wa attbutable to tie spet settg rates for heathca coverae contr for
prosptive subscribe on a subscriber-spific bais.

Answer to Request for Admission No.9:
Admitted.

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Request for Admission No. 10:
In the years 1987 though 1997, some of plaintiffs employees spent all or most of their tie
performing one or more ofUle following activities: (I) investigatig Ule claims history of subscbers; (2) anyz the clai history of

prospetive prospetive subscribers; (3) setting rates for healthcar

coverae contrcts for prospective subscribers.

Answer to Request for Admission No. 10:

Admitted.
Request for Admission No. 11:
In the year 1987 thugh 1 997, some of plaitiff s employees spent at lea one haf of their time
performing one or more of the following activities: (1) investigatig the clais history of subscnbers; (2) anyzg the clai history of

prospetive prosptive subscribers; (3) setting rates for heathcae

coverage contrcts for prospetive subscrbe.

Answer to Request for Admission No. 11:

Admitted.
Request for Admission No. 12:
In the years 1987 though 1997, some of plaintiffs employees spnt at least one quar of
their time performing one or more of history of

the following activities: (I) investigating the claims
prospctive subscnbers; (3)

prospective subscribers; (2) anyzg the claims history of

setting rates for healthcae coverage contracts for prospective subscribers.

Answer to Request for Admission No. 12:

Admitted.
Request for Admission No. 13:
In the yea 1977 thugh 1997 platiff incur cost assoiate with crtig, or faciltating
the creation of, healthcare coverage contracts, but unelated to advertising or sellin expenss, tht

contrbute to the generation of subscption income and provided a long-term benefit that plaintiff
realized over the lives of

the contracts.

Answer to Request for Admission No. 13:

Plaintiff objects to this Request on the grounds that many of the terms used therein are

vague and undefined, including "costs associated with," "crg, or faciltating the creation of,
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healthcare coverage contracts," "sellng expenses," "contrbuted to the genertion ~f subscription

income," and "long-term benefit." Subject to these objections, Plaintiff answers as follows.

Admtted with ret to some, but not all, healthcare coverage contrts.
Request for Admission No. 14:
Each of

plaintiffs heathcar coverage contrts constitutes a separte and distinct intagible

asset.

Answer to Request for Admission No. 14:

Admitted.

Request for Admission No. is:
Plaitiffhas a propert interest in each of

its healthca coverae contrts.

Answer to Request for Admission No. is:
Admitted.

Request for Admission No. 16:
Plaitiffs propert interest in each of transferred separate and apar from the rest of

its healthcar covere contrts can be sold or
plaintiffs business.

Answer to Request for Admission No. 16:

Admitted.

Request for Admission No. 17
The benefits plaintiff realizes from the expenditures plaintiff makes to create, or faciltate the creation of, healthcare coverage contracts are not fully realized within the year in which the expenditures are made.
Answer to Request for Admission No. 17

Plaintiff objects to this Request on the grounds that the term "crte, or faciltate the
creation of, healthcare coverage contracts" is vague and undefined. Subject to this objection,

Plaintiff answers as follows. Admitted that some are not fully realized.
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Request for Admission No. 18
Plaintiffs healthcae coverage contrcts are assets with expected usefu

lives exceeding one

year.

Answer to Request for Admission No. 18
Admittd that some of

Plaitiffs healthcare coverage contracts are assets with expected useful

lives exceeding one year. Denied that all are.
Reauest for Admission No. 19

Plaintiffs healthcare coverage contrcts provide benefits to plaintiff for a period of time extending beyond the year in which they ar entered into.
Answer to Request for Admission No.19
Admitted that some

of Plaintiffs healthcar coverage contracts provide benefits to Plaintiff

for a period of time extending beyond the year in which they ar entere into. Denied tht all do.

Request for Admission No. 20
llaitiffhas never sold or exchaged for consideration any of

the contracts referrd to in

paragraph i 8 of the complaint.

Answer to Request for Admission No.20

Admtted.
Reauest for Admission No. 21
In each of

the yea 1987 though i 997, for purses of calculating its federa income ta

liabilty, plaintiff deducted as ordinar and necessar business expenses certain costs incurd in
creating, or facilitatig the creation of, heathcae coverae contracts.

Answer to Request for Admission No.21

Admitted.
Request for Admission No. 22

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In eah of the 1987 thug 1997 ta yea, for purse of caculatig its feder income ta

liability, plaintiff deducted as ordin and necssar businss expenss the cost referred to in number 13, supra.
Answer to Request for Admission No. 22

Admitted.
Request for Admission No. 23

Durg the period Janua 1, 1977, thugh Janua 1, 1997, plaitiff

expe the cost referr

to in number i 3, supra, for purses of its fiancial accounting records.
Answer to Request for Admission No. 23
Admitted subject Plaitiffs objections to Request 13.

Request for Admission No. 24

Expnsing the cost refer to in numbe 13, supra durg the period Janua I, i 977, though
Janua I, 1997, was consistent with professional financial accounting stadar.

Answer to Request for Admission No. 24

Admtted subject Plaitiffs objections to Request 13.
Request for Admission No. 25

Expensing the cost referr to in number 13, supra durg the period Janua 1, 1977, through
Januar I, 1997, was consistent with applicable insurce regulations.

Answer to Request for Admission No. 25
Admitted subject Plaitiffs objections to Request 13.

Request for Admission No. 26
On its original income ta retu for the i 987 though 1995 ta yea, plaitiff did not clai

deductions for termate or cacelled healthcare coverae contrts.
Answer to Request for Admission No. 26

Admitted.

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Request for Admission No. 27

Plaintiff claied deductions for tennnated or cancelled healthcare coverae contrcts for each

of the 1992 thugh 1995 ta yea by filing a fonnal or inonnal refud clai with the IRS
sometime after September 1, 1996.

Answer to Request for Admission No. 27

Admitted.
Request for Admission No. 28

Plaitiff claimed deductions for tennnated or cacelled healthcar coverage contrcts for the
1996 and 1997 ta year on its originaly filed income ta retu for those year.

Answer to Request for Admission No. 28

Admitted.
Request for Admission No. 29
Plaitiff did not secur the consnt of termnation or cancellation of health

the IR to chage its method of acuntig for the

car coverage contrcts between the tie it filed its ongi

income ta retu for the 1987 thugh 1995 ta yea and the tie it filed its refud clais for the
1992 though 1995 ta year.

Answer for Request for Admision No. 29
Plaitiff objects to ths Request on the grunds tht it incorrtly assumes a change in method
of accountig. Plaintiff denies that any change in method of accounting took plac.

Request for Admission No. 30

Plaintiff did not secur the consent of the IRS to change its method of accountig for the
termnation or cancellation of health

car coverage contrcts between the tie it fied its origi

income ta retus for the 1987 though 1995 ta year and the time it fied its origial income ta
retu for the 1996 and 1997 ta yea.

Answer to Request for Admision No. 30.

Plaitiff objects to ths Request on the grounds that it incorrtly assumes a chage in method
of accunting. Plaitiff denies that any change in method of accountig took place.

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Request for Admision No. 31

Plaitiff contends tht, for the i 992 thugh 1997 ta yea, plaitiff is entitled to income ta
deductions for expes incur in eah of

those yea to crete, or facilta the creation of, healthcare

coverage contracts as well as deductions for losses it sustained upon the termination or
cancellation of health

care coverage contracts.

Answer to Request for Admission No. 31

Admitted.
Request for Admission No. 32

A nwnber of the heathca coverae contrts held by plaitiff on Janua 1, 1987, were
tennte or cacelled in eah yea afer 1986.

Answer to Request for Admision No. 32

Adrttd.
Request for Admision No. 33
Plaintiff intends to clai a deduction for the tennnation or cacellation of each healthcare coverage contract held by plaintiff on Januar 1, 1987, until all of the heathca covere contrts held by plaitiff on Janua 1, 1987, have ce to be renewed.
Answer to Request for Admission No. 33

Plaintiff admits that it intends to clai a deduction for the termination or cancellation of each
hea1thcare coverage contract held by plaintiff

on Januar 1, 1987, when such contracts are

actually terminated or cancelled.
Request for Admission No. 34
Plaintiff made no attempt to calculate the fair market value of

the contracts referred to in

parph 18 of the complait until th yea 1997.
Answer to Request for Admision No. 34

Admtted excet tht ths effort began in i 996.

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Request for Admission No. 35
With respect to each of the following categories of

information, admit or deny tht plaintiffs

records do not conta the iiúonnation on a subscriber-specific basis for all of contrts referr to in pah 18 of

the heathca covere

the complait:

(l) the subscriber's payment pattrn frm the contract's sta date until Janua 1, 1987;
(2) the subscriber's claims expeence from the contrct's sta date witil Janua I, i 987;

(3) the subscriber's level of satisfaction with plaintiffs servces as of Janua i, i 987;

(4) the existence and terms of any proposals for coverage that the subscriber reived frm
another heath inurr before Janua I, 1987; and

(5) the subscriber's net anual income as of Janua 1,1987.

Answer to Request for Admission No. 35

Plaintiff objects to this Request on the grounds that it is vague and unduly burdensome.

Subject to these objections, Plaintiff answers as follows. Denied for (1) and (2). Admitted for
(3), (4), and (5).
Request for Admission No. 36
With respect to each of the following categories of

information, admit or deny that
the paricipants covere by the heathca

plaintiffs records do not conta the inormation for all of

coverae contrts referr to in paph 18 of the complait:
(1) the pacipat's histoiy of

heath problem before Janua I, 1987;

(2) the parcipant's clai experience from the contrct's sta date until Janua 1, 1987;

(3) the paricipant's occupation as of Janua 1, 1987; (4) the parcipat's income level as of Janua 1,1987; (5) the paricipant's education level as of Januar i, 1987;

(6) the paricipant's martal status as of Janua 1, 1987; and
(7) the nwnber, sex, and age of

th parcipant's depndents as of Janua 1, 1987.

Answer to Request for Admission No. 36

Plaintiff objects to this Request on the grounds that it is vague and unduly burdensome.
Subject to these objections, Plaintiff answers as follows. Denied for (1) and (2). Admtted for (3),

(4), (5), (6), and (7).
Request for Admission No. 37

With respect to each of the following categories of inormation, admt or deny that, in calculating the $6,256,006 ta refud set fort in the prayer for relief in the complait, plaintiff did
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not take into account the information on a subscriber-specific basis for all of the healthcare
coverage contracts referred to in paragraph 18 of the complaint:
(I) the subscriber's payment pattern from the contrct's sta date until Janua i, 1987;
(2) the subscriber's claims experience from the contrct's sta date until Janua 1, 1987;

(3) the subscriber's level of satisfaction with plaitiffs servces as of Januar 1, 1987;

(4) the existnce and te of any proposas for coverae tht the subscrber reived frm
another heath inr before Janua 1, 1987; and

(5) the subscriber's net anual income as of Januar 1, 1987.

Answer to Request for Admission No. 37

Plaintiff objects to this Request on the grounds that it is vague and unduly burdensome.

Subject to these objections, Plaintiff answers as follows. Admitted.
Request for Admission No. 38

information, admt or deny that, in With respct to each of the following categories of calculating the $6,256,006 tax refund set forth in the prayer for relief in the complaint, plaintiff
the paricipants covered by the healthcar did not take into account the information for all of coverage contracts referred to in paragraph 18 of the complaint:

(1) the paricipant's gender;
(2) the parcipant's history of

heath problems before Janua 1, 1987;

(3) the paricipant's clais experience frm the contrt's st date until Janua 1, 1987;
(4) the paricipant's occupation as of Januar 1, 1987; (5) the pacipant's income level as of Janua 1, 1987; (6) the paricipant's education level as of Januar 1, 1987; of Janua i, 1987; and (7) the paricipant's marita status as the paricipant's dependents. (8) the number, sex, and age of
Answer to Request for Admission No.