CONSOLIDATED FEDERAL INCOME TAX AGREEMENT
This Agreement is entered into this 10th day of June, 1988 to be effective
January 1, 1988 between Blue Cross & Blue Shield United of Wisconsin (BCBSU),
United Wisconsin Insurance Company, United Wisconsin Services, Inc., United
Wisconsin Proservices, Inc., Leasing Unlimited, Inc., United Wisconsin Life
Insurance Company, Compcare Health Services Insurance Corporation, ProHealth,
Inc. and Take Control, Inc. ("Subsidiaries"). BCBSU and Subsidiaries are
referred to herein as the "Consolidated Group." The corporations which comprise
the "Consolidated Group" are individually referred to herein as "Members".
Whereas, BCBSU and Subsidiaries are part of an affiliated group of
corporations within the meaning of Section 1504(a) of the Internal Revenue Code
of 1954, as amended (the "Code"); and
Whereas, the Consolidated Group intends to file a consolidated federal
income tax return and consolidated financial statements with the parent
corporation of BCBSU for the taxable year ending December 31, 1988 and
subsequent years; and
Whereas, it is anticipated that the consolidated tax return liability
for any tax year may be greater or less than the aggregate of the separate
tax return liabilities of all the Members; and
Whereas, it is intended by this Agreement to establish obligations between
Members for the payment or refund of amounts in lieu of federal income taxes
with the effect that (1) each Member will benefit from those tax attributes
which that Member would be able to utilize if filing a separate return with the
Internal Revenue Service.
Now, therefore, in consideration of their mutual promises and of other good
and valuable consideration, BCBSU and each of the Subsidiaries on its own behalf
agree to allocate tax liability and benefit among Members of the Group as
follows:
I. When the consolidated group is in an alternative minimum tax position for
Federal tax purposes, the allocation shall be made in accordance with the
"Alternative Tax method" as shown in Exhibit I.
II. When the consolidated group is not in an alternative minimum tax position
for Federal tax purposes, the allocation shall be made in accordance with
the "Regular Tax Method" as shown in Exhibit II.
This allocation is not intended to be used for allocation of Federal tax
liability among members for purposes of determining the "Earnings &
Profits" of members for Federal tax purposes.
In witness whereof, the parties hereto have executed this Agreement as of
the day and year first above written.
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
By:
------------------------------------------------------------
Xxxxxx X. Xxxxx
President
By:
------------------------------------------------------------
Xxxxxx Xxxxxx
Secretary
UNITED WISCONSIN INSURANCE COMPANY
UNITED WISCONSIN LIFE INSURANCE COMPANY
UNITED WISCONSIN PROSERVICES, INC.
UNITED WISCONSIN SERVICES, INC.
By:
------------------------------------------------------------
Xxxxxx X. Xxxxx
President
By:
------------------------------------------------------------
Xxxxxx Xxxxxx
Secretary
COMPCARE HEALTH SERVICES INSURANCE CORPORATION
By:
------------------------------------------------------------
Xxxxxx X. Xxxxx
President
By:
------------------------------------------------------------
Xxxx Xxxxxx
Secretary
LEASING UNLIMITED, INC.
By:
------------------------------------------------------------
Xxxxxx X. Xxxxx
President
By:
------------------------------------------------------------
Xxxxxx Xxxxxx
Secretary
TAKE CONTROL, INC.
By:
------------------------------------------------------------
Xxxxxx Xxxxxxx
President
By:
------------------------------------------------------------
K. Xxxxx Xxxxxxxx
Secretary
EXHIBIT I
"Alternative Tax Method"
This allocation is used when the affiliated group of corporations is in a
consolidated alternative minimum tax position.
The steps required in the calculation are as follow:
1. Determine the ordinary income and NET capital gain of each member of the
group. Charge the member 20% in tax for both the ordinary income and net
capital gain.
2. Determine each member's current year ordinary and capital losses. to the
extent its losses can be utilized in the consolidated tax return, the
member receives a 20% tad benefit for the use of its losses.
3. Determine each member's capital loss carryovers that can be utilized in the
consolidated tax return.
These carryforwards are utilized in the order of the taxable year in which
such losses are sustained beginning with the taxable year which ends
earliest and applying all losses from taxable years ending on the same date
on a pro rata basis.
4. Determine the tax preferences and alternative minimum tax adjustments
(other than the book income/taxable income adjustment) attributable to each
member.
If the sum of the preferences and adjustments increases alternative minimum
taxable income, the member is charged 20% in tax. If the sum of the
preferences and adjustments reduces alternative minimum taxable income, the
member receives a 20% tax benefit.
5. For each member, determine a book/tax adjustment by using the following
formula:
(Book income of member - alternative minimum taxable income of that member)
x .50 =
Book/tax adjustment for that member.
This amount can be either a positive or negative number, for purposes of this
allocation.
If the absolute of the aggregate of the negative book/tax adjustments exceeds
the aggregate of the positive book/tax adjustments, then each member who has a
negative book/tax adjustment must reduce this adjustment TO the following
amount.
Negative book/tax adjustments Aggregate of book/tax
of a member adjustments of all
members with positive
--------------- x book/tax adjustment
Aggregate book/tax adjustment
of all members with negative
book/tax adjustments
Each member with a negative book/tax adjustment receives a 20% tax benefit for
the use of this adjustment. Each member with a positive book/tax adjustment is
charged 20% in tax.
6. Determine each member's alternative minimum tax NOL carryforwards that can
be utilized in the consolidated tax return. The earliest NOL's are
utilized first. If the NOL's are from the same year, they're applied on a
pro rata basis.
Each member receivers a 20% benefit for the use of its NOL carryforward.
7. Each member is allocated a portion of the alternative minimum tax exemption
amount that's allowed in the consolidated tax return. This allocation is
one in accordance with the following formula.
Exemption amount Exemption amount
allocated per allowed in the
member = consolidated tax
return
---------------------
# of members in
the group
A member receives a 20% tax benefit for the exemption amount allocated to
it.
8. A member gets a 100% benefit for its investment tax credit utilized during
the year.
9. A member is charged 100% of its ITC recapture for the year attributable to
that member.
10. A member will receive 100% of the alternative minimum tax credit utilized
that's attributable to that member. The amount attributable to that member
is determined by first going back to the year the credit was generated.
The amount of the credit attributed to a member is equal to the following:
Members deferral
preference in Credit utilized in
year in which the current year's
credit arose x return
--------------------
Total deferral
preferences of
all members in year
the credit arose
EXHIBIT II
"Regular Tax Method"
The steps required in determining the tax allocation under the "regular tax
method" are as follows:
1. Determine each member's ordinary income and net capital gains for the year
(before capital loss or NOL carryforwards).
The member with ordinary income is charged 40% of its ordinary income in
tax (34% in 1988) and the member with capital gain is charged 34%.
2. Determine each member's current year capital losses and current year
ordinary losses. If a members' losses are used in the consolidated return,
the member receives a 34% tax benefit for the use of its capital losses and
a 40% benefit for the use of its ordinary losses (34% in 1988 and
thereafter)
3. Determine each member's NOL and capital loss carryforwards that can be
utilized in the consolidated tax return. Carryforwards can be utilized in
the order of taxable years in which such losses are sustained beginning
with the taxable year which ends earliest and applying all losses from
taxable years ending on the same date as a pro rata basis.
Each member receives a 40% tax benefit (34% in 1988 and thereafter) if its
NOL carryover is used to offset ordinary income. If a capital loss or NOL
carryover are used to offset capital gain, the member receives a 34% tax
benefit.
4. If a member's ITC credit carryover is utilized in the consolidated tax
return, it receives a tax benefit of 100% of the ITC utilized.
5. A member is charged 100% of its ITC recapture for the year.
6. Each member's tax charges and tax benefits are totalled resulting in the
tax allocation for the period.
7. A member will receive 100% of the alternative minimum tax credit utilized
that's attributable to that member. The amount attributable to that member
is determined by first going back to the year the credit was generated.
The amount of the credit attributed to a member is equal to the following:
Members deferral
preference in Credit utilized in
year in which the current year's
credit arose x return
--------------------
Total deferral
preferences of
all members in year
the credit arose
Amendment to Consolidated Federal Income Tax
Allocation Agreement Dated June 10, 1988
This amendment to the Consolidated Federal Income Tax Allocation Agreement dated
June 10, 1988 is entered into this 6th day of August, 1993 to be effective for
the period January 1, 1990 through December 31, 1992 between Blue Cross & Blue
Shield United of Wisconsin (BCBSU), United Wisconsin Insurance Company (UWIC),
United Wisconsin Services, Inc. (UWSI), United Wisconsin Proservices, Inc.
(UWPS), Leasing Unlimited, Inc. (LUI), United Wisconsin Life Insurance Company
(UWLIC), Compcare Health Services Insurance Corporation (CHSIC), ProHealth, Inc.
(PH), Take Control, Inc. (TC), Meridian Resource, Inc. (MR), United Wisconsin
Capital Corporation (UWCC) and Valley Health Plan, Inc. (Valley) formerly
Midelfort Health Plan.
This amendment is made part of the Consolidated Federal Income Tax Allocation
Agreement dated June 10, 1988. Under this amendment, Exhibit 1 "Alternative Tax
Method" is revised to read as per the attached.
Now, therefore, in consideration of their mutual promises and other good and
valuable consideration, BCBSU and each of the subsidiaries on its own behalf
agrees to this amendment to the Federal Tax Allocation Agreement dated June 10,
1988.
In witness whereof, the parties hereto have executed this amendment as of the
day and year first above written.
Amendment to Consolidated Federal Income Tax
Allocation Agreement Dated June 10, 1988
"Alternative Tax Method"
This allocation is used when the affiliated group of corporations is in a
consolidated alternative minimum tax position before considering the limitations
on NOL usage with respect to United Wisconsin Insurance Company preferred stock
and United Wisconsin Life Insurance Company's life insurance company taxable
income.
The steps required in the calculation are as follows:
1. Determine the ordinary income and NET capital gain of each member of the
group. Charge the member 20% in tax for both the ordinary income and net
capital gain.
2. Determine each member's current year ordinary and capital losses. To the
extent its losses can be utilized in the consolidated tax return, the
member receives a 20% tax benefit for the use of its losses.
3. Determine each member's capital loss carryovers that can be utilized in the
consolidated tax return.
These carryforwards are utilized in the order of the taxable year in which
such losses are sustained beginning with the taxable year which ends
earliest and applying all losses from taxable years ending on the same date
on a pro rata basis.
4. Determine the tax preferences and alternative minimum tax adjustments
(other than the book income/taxable income adjustment) attributable to each
member.
If the sum of the preferences and adjustments increases alternative minimum
taxable income, the member is charged 20% in tax. If the sum of the
preferences and adjustments reduces alternative minimum taxable income, the
member receives a 20% tax benefit.
5. For each member, determine a book/tax adjustment by using the following
formula:
(Book income of member - alternative minimum taxable income of that member)
x .50 = Book/tax adjustment for that member.
This amount can be either a positive or negative number, for purposes of
this allocation.
If the absolute of the aggregate of the negative book/tax adjustments
exceeds the aggregate of the positive book/tax adjustments, then each
member who has a negative book/tax adjustment must reduce this adjustment
TO the following amount:
Negative book/tax Aggregate of book/tax
adjustment of a adjustment of all
member members with positive
-------------------- x book/tax adjustments
Aggregate book/tax
adjustment of all
members with negative
book/tax adjustments
Each member with a negative book/tax adjustment receives a 20% tax benefit
for the use of this adjustment. Each member with a positive book/tax
adjustment is charges 20% in tax.
6. For each member, determine the adjusted current earnings adjustment (ACE
adjustment) by using the following formula:
Adjusted Current Earnings (as defined in IRC Section 56(g)(3)) of
Member minus Alternative Minimum Taxable Income (AMTI) determined
without regard to the ACE adjustment and the AMTI NOL (see IRC Section
56(g)(1)(B)) x .75 = ACE Adjustment of a member.
This amount can be either a positive or negative number for purposes
of this allocation.
If the absolute of the aggregate of the current year negative ACE
adjustments exceed the aggregate of the positive ACE adjustments, then it
must be determined how much of this excess negative adjustment can be
recognized for tax purposes. To the extent that this aggregate excess
negative ACE
adjustment cannot be used for tax purposes each member who has a negative
ACE adjustment must reduce this adjustment by the following amount:
Negative ACE adjustment
of a member Negative ACE adjustment
------------------------- x that cannot be utilized
Aggregate ACE adjustments for tax purposes
of all members with negative
ACE adjustments
Each member with a negative ACE adjustment receives a 20% tax benefit for
the negative ACE adjustment that can be utilized. Each member with a
positive ACE adjustment is charged 20% in tax.
7. Determine each member's alternative minimum tax (alt min) NOL carryforwards
that can be utilized in the consolidated tax return. The earliest NOL's
are utilized first. If the NOL's are from the same year, they're applied
on a pro rata basis.
Each member receives a 20% benefit for the use of its alt min NOL
carryforward.
8. Each member is allocated a portion of the alternative minimum tax exemption
amount that's allowed in the consolidated tax return. This allocation is
done in accordance with the following formula:
Exemption amount Exemption amount
allocated per allowed in the
member = consolidated tax
return
--------------------
# of members in
the group
A member receives a 20% tax benefit for the exemption amount allocated to
it.
9. A member gets a 100% benefit for its investment tax credit (ITC) utilized
during the year.
10. A member is charged 100% of its ITC recapture for the year attributable to
that member.
11. A member will receive a benefit for 100% of the alternative minimum tax
credit attributable to that member that's utilized in the consolidated
return. The amount of alternative minimum tax credit of a member utilized
in any year is determined in accordance with the rules provided in Proposed
Treasury Regulation 1.1502-55(h).
The amount of the credit attributed to a member for any year is determined
in accordance with the rules provided in Proposed Treasury Regulation
1.1502-55(h).
12. The consolidated environmental tax is allocated to a member in accordance
with the following formula:
Member's modified alternative minimum taxable income (1)
Less: $2,000,000 divided by the number of members with group
-----------------------------------
(1) As defined in Section 59A(b) of the IRC
x .0012 =
Member's portion of consolidated environmental tax
Note that a member with negative modified alternative minimum taxable
income will be allocated a tax benefit with respect to the environmental
tax.
13. An exception to the allocation under steps 1 through 11 occurs when the
affiliated group files a life non-life consolidated return and the group
has non-life NOL's which cannot shelter 65% of life insurance company
taxable income because of the life non-life consolidation rules. In this
case, the tax allocated to the life insurance company will be the sum of
the following amounts:
A. 35% x the life company's taxable income x 20%
B. 65% x the life company's taxable income x 34%
C. 35% x (the life company's AMT preferences, adjustments and the AMT ACE
adjustment) x 20%
D. Any difference between the amount allocated to the life company under
steps 1 through 11 and the amount allocated to the life company under
steps 1 through 13.C. will be a tax expense or benefit of BCBS.
14. An exception to the tax allocation under steps 1 through 11 occurs in years
in which UWIC pays a preferred stock dividend and has taxable income for
the year. In this case, the tax allocated to UWIC will be determined in
the following manner.
A. Step 1 will be calculated using UWIC's ordinary income and capital
gains less the portion of the ordinary income and capital gains that
pertains to the preferred stock.
B. Step 6 will be calculated using only UWIC's adjusted current earnings
and pre-adjustment AMTI that does not pertain to the preferred stock.
C. UWIC is also allocated an amount equal to 34% of the greater of the
dividend that it pays on the preferred stock during the year or UWIC's
taxable income for the year.
D. UWIC also receives a tax benefit equal to the tentative minimum tax
for the group as determined in steps 1 through 11 and steps 13A & B.
for the year not to exceed the amount determined in paragraph 14.C.
E. Any difference between the amount allocated to UWIC under steps 1
through 11 and the amount allocated to UWIC under steps 1 through 11
and 14.A. through 14.D. will be a tax expense or benefit of BCBS.
15. An exception to the tax allocation under steps 1 through 11 occurs in years
in which UWS pays a preferred stock dividend and has taxable income for the
year. In this case, the tax allocated to UWS will be determined in the
following manner.
A. Step 1 will be calculated using UWS's ordinary income and capital
gains less the portion of the ordinary income and capital gains that
pertains to the preferred stock.
B. Step 6 will be calculated using only UWS's adjusted current earnings
and pre-adjustment AMTI that does not pertain to the preferred stock.
C. UWS is also allocated an amount equal to 34% of the greater of the
dividend that it pays on the preferred stock during the year or UWS's
taxable income for the year.
D. Any difference between the amount allocated to UWS under steps 1
through 11 and the amount allocated to UWS under steps 1 through 11
and 14.A. through 14.D. will be a tax expense or benefit of BCBS.
Blue Cross & Blue Shield United of Wisconsin
By: /s/ C. Xxxxxx Xxxxx
-----------------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------------
Xxxx X. Xxxxxx
Treasurer
United Wisconsin Insurance Company
United Wisconsin Life Insurance Company
United Wisconsin Proservices, Inc.
United Wisconsin Services, Inc.
By: /s/ C. Xxxxxx Xxxxx
-----------------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------------
Xxxx X. Xxxxxx
Treasurer
Leasing Unlimited, Inc.
By: /s/ C. Xxxxxx Xxxxx
-----------------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------------
Xxxx X. Xxxxxx
Treasurer
Compcare Health Services Insurance Corporation
By: /s/ C. Xxxxxx Xxxxx
-----------------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------------
Xxxx X. Xxxxxx
Treasurer
ProHealth, Inc.
By: /s/ C. Xxxxxx Xxxxx
-----------------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------------
Xxxx X. Xxxxxx
Treasurer
Take Control, Inc.
By: /s/ C. Xxxxxx Xxxxx
-----------------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------------
Xxxx X. Xxxxxx
Treasurer
Meridian Resource, Inc.
By: /s/ C. Xxxxxx Xxxxx
-----------------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------------
Xxxx X. Xxxxxx
Treasurer
United Wisconsin Capital Corporation
By: /s/ C. Xxxxxx Xxxxx
-----------------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------------
Xxxx X. Xxxxxx
Treasurer
Valley Health Plan, Inc.
By: /s/ C. Xxxxxx Xxxxx
-----------------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------------
Xxxx X. Xxxxxx
Treasurer
Amendment to Consolidated Federal Income Tax
Allocation Agreement
This amendment to the Consolidated Federal Income Tax Allocation Agreement
dated June 10, 1988 is entered into this 9 day of May, 1994 to be effective
for the period January 1, 1990 through December 31, 1992 between Blue Cross &
Blue Shield United of Wisconsin (BCBSU), United Wisconsin Insurance Company
(UWIC), United Wisconsin Services, Inc. (UWSI), United Wisconsin Proservices,
Inc. (UWPS), Leasing Unlimited, Inc. (LUI), United Wisconsin Life Insurance
Company (UWLIC), Compcare Health Services Insurance Corporation (CHSIC),
ProHealth, Inc. (PH), Take Control, Inc. (TC), Meridian Resource, Inc. (MR),
United Wisconsin Capital Corporation (UWCC) and Valley Health Plan, Inc.
(Valley) formerly Midelfort Health Plan.
This amendment is made part of the Consolidated Federal Income Tax Allocation
Agreement dated June 10, 1988.
Under this Agreement, Step 11 of the "Alternative Tax Method" found in the
August 6, 1993 Amendment to the Allocation Agreement dated June 10, 1988, is
revised to read as follows:
A member will receive a benefit for 100% of the alternative minimum tax credit
attributable to that member that's utilized in the consolidated return. The
amount of alternative minimum tax credit of a member utilized in any year is
determined in accordance with the rules provided in Proposed Treasury Regulation
1.1502-55(h).
The amount of the credit attributed to a member for any year after 1992 is
determined in accordance with the rules provided in Proposed Treasury Regulation
1.1502(h). For years prior to 1992, all of the credit will be attributed to
BCBSU.
Now, therefore, in consideration of their mutual promises and other good and
valuable consideration, BCBSU and each of the subsidiaries on its own behalf
agrees to this amendment to the Federal Tax Allocation Agreement dated June 10,
1988.
In witness whereof, the parties hereto have executed this amendment as of the
day and year first above written.
Blue Cross & Blue Shield United of Wisconsin
By: /s/ C. Xxxxxx Xxxxx
-------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Xxxx X. Xxxxxx
Treasurer
United Wisconsin Insurance Company
United Wisconsin Life Insurance Company
United Wisconsin Proservices, Inc.
United Wisconsin Services, Inc.
By: /s/ C. Xxxxxx Xxxxx
-------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Xxxx X. Xxxxxx
Treasurer
Leasing Unlimited, Inc.
By: /s/ C. Xxxxxx Xxxxx
-------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Xxxx X. Xxxxxx
Treasurer
Compare Health Services Insurance Corporation
By: /s/ C. Xxxxxx Xxxxx
-------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Xxxx X. Xxxxxx
Treasurer
ProHealth, Inc.
By: /s/ C. Xxxxxx Xxxxx
-------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Xxxx X. Xxxxxx
Treasurer
Take Control, Inc.
By: /s/ C. Xxxxxx Xxxxx
-------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Xxxx X. Xxxxxx
Treasurer
Meridian Resource, Inc.
By: /s/ C. Xxxxxx Xxxxx
-------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Xxxx X. Xxxxxx
Treasurer
United Wisconsin Capital Corporation
By: /s/ C. Xxxxxx Xxxxx
-------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Xxxx X. Xxxxxx
Treasurer
Valley Health Plan, Inc.
By: /s/ C. Xxxxxx Xxxxx
-------------------------------------
C. Xxxxxx Xxxxx
Vice President
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Xxxx X. Xxxxxx
Treasurer
