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American States Insurance Co. v. Hamer

Case Date: 08/27/2004
Court: 1st District Appellate
Docket No: 1-03-1646 Rel

FIFTH DIVISION
AUGUST 27, 2004

No. 1-03-1646

AMERICAN STATES INSURANCE COMPANY,
an Indiana corporation, on its own behalf and on
behalf of the Combined Group American States Insurance
Company and Combined Subsidiaries American
Economy Insurance Company, American States
Preferred Insurance Company, American States
Insurance Company of Texas, American States Lloyds
Insurance Company, Insurance Company of Illinois and
American States Life Insurance Company,

          Plaintiffs-Appellees,

                    v.

BRIAN A. HAMER, as Director of the Illinois
Department of Revenue; THE ILLINOIS
DEPARTMENT OF REVENUE, and JUDY
BAAR TOPINKA, in her official capacity as
Treasurer of the State of Illinois,

          Defendants-Appellants.

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Circuit Court of
Cook County.







No. 01 L 50940







Honorable
Joanne L. Lanigan,
Judge Presiding.


PRESIDING JUSTICE CAMPBELL delivered the opinion of the court:

Defendants Brian A. Hamer, as Director of the Illinois Department of Revenue(1), theIllinois Department of Revenue (Department), and Judy Baar Topinka, as Treasurer of the Stateof Illinois, appeal from an order of the circuit court of Cook County granting summary judgmentto the plaintiff taxpayer, American States Insurance Company (American States). AmericanStates brought this suit pursuant to sections 1, 2, 2a and 2a..1 of the State Officers andEmployees Money Disposition Act (Protest Monies Act) (30 ILCS 230/1 et seq. (West 2000)), toprotest a notice of income tax deficiency issued by the Department. The issue is whether a gainfrom the sale of American States should be classified as business or nonbusiness income.

The record on appeal discloses that American States, a foreign corporation and Illinoistaxpayer, is the designated agent of a group of combined insurance companies and its subsidiaries. In 1997, American States was owned by American States Financial Corp. (ASFC). More than80% of AFSC's stock was owned by Lincoln National Corporation (Lincoln), an Indianacorporation.

In October 1997, SAFECO Corporation purchased 100% of ASFC's stock from Lincolnand the minority shareholders, resulting in a cash distribution to all shareholders. SAFECOformed a subsidiary named ASFC Acquisition Corporation, which merged with ASFC. AmericanStates continued to do business in Illinois after the sale.

SAFECO and Lincoln elected to treat the stock sale as a "deemed sale of assets" undersection 338 of the Internal Revenue Code (26 U.S.C.