Case: 4:21-cv-00740-JCH Doc. #: 1 Filed: 06/22/21 Page: 1 of 7 PageID #: 1
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF MISSOURI
`EASTERN DIVISION
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`EXPRESS SCRIPTS HOLDING COMPANY
`AND SUBSIDIARIES,
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`Plaintiffs,
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`v.
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`THE UNITED STATES,
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`Defendant.
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`Case No. __________________
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`COMPLAINT
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`Plaintiff, Express Scripts Holding Company and Subsidiaries (“Express Scripts”),1 brings
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`this action against defendant, the United States, for a refund of federal income taxes, and alleges:
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`NATURE OF THE ACTION
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`1.
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`Express Scripts brings this action under 26 U.S.C. § 7422 for the refund of federal
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`income taxes. Express Scripts properly claimed the Domestic Production Activities Deduction
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`pursuant to 26 U.S.C. § 199 related to the production of its claims adjudication software on its
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`amended federal income tax return for its tax year ended December 31, 2012 (the year at issue).
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`The Internal Revenue Service (“IRS”) erroneously denied the deduction and refused to refund
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`Express Scripts an overpayment of its 2012 income taxes in the amount of $34,111,929.2
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`1 For the tax year 2012, Express Scripts Holding Co. was the parent of Express Scripts, Inc., the plaintiff in
`Express Scripts, Inc. and Subsidiaries v. United States, No. 4:21-cv-00737-NCC, which was filed on June 22, 2021.
`Both companies are now owned by Cigna Corporation.
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`2 Express Scripts filed a refund claim for $35,431,314. The IRS refunded tax and interest of $1,468,737.59.
`Accordingly, the remaining refund claim is $34,111,929 plus interest.
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`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF MISSOURI
`EASTERN DIVISION
`
`
`EXPRESS SCRIPTS HOLDING COMPANY
`AND SUBSIDIARIES,
`
`
`
`
`Plaintiffs,
`
`v.
`
`
`
`
`
`
`
`
`
`THE UNITED STATES,
`
`Defendant.
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`
`
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`)
`)
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`)
`)
`
`Case No. __________________
`
`
`
`
`
`COMPLAINT
`
`Plaintiff, Express Scripts Holding Company and Subsidiaries (“Express Scripts”),1 brings
`
`this action against defendant, the United States, for a refund of federal income taxes, and alleges:
`
`NATURE OF THE ACTION
`
`1.
`
`Express Scripts brings this action under 26 U.S.C. § 7422 for the refund of federal
`
`income taxes. Express Scripts properly claimed the Domestic Production Activities Deduction
`
`pursuant to 26 U.S.C. § 199 related to the production of its claims adjudication software on its
`
`amended federal income tax return for its tax year ended December 31, 2012 (the year at issue).
`
`The Internal Revenue Service (“IRS”) erroneously denied the deduction and refused to refund
`
`Express Scripts an overpayment of its 2012 income taxes in the amount of $34,111,929.2
`
`
`1 For the tax year 2012, Express Scripts Holding Co. was the parent of Express Scripts, Inc., the plaintiff in
`Express Scripts, Inc. and Subsidiaries v. United States, No. 4:21-cv-00737-NCC, which was filed on June 22, 2021.
`Both companies are now owned by Cigna Corporation.
`
`2 Express Scripts filed a refund claim for $35,431,314. The IRS refunded tax and interest of $1,468,737.59.
`Accordingly, the remaining refund claim is $34,111,929 plus interest.
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`Case: 4:21-cv-00740-JCH Doc. #: 1 Filed: 06/22/21 Page: 2 of 7 PageID #: 2
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`PARTIES
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`2.
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`Express Scripts is a Delaware corporation with its principal place of business at
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`One Express Way, St. Louis, Missouri 63121.
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`3.
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`Express Scripts maintained its books and records and timely filed its federal
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`income tax return and amended federal income tax return on the basis of the calendar year and
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`using the accrual method of accounting.
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`4.
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`Defendant is the United States of America.
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`JURISDICTION AND VENUE
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`5.
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`This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1346(a)(1) and
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`26 U.S.C. § 7422. This action is timely under 26 U.S.C. § 6532(a)(1).
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`6.
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`Venue is proper in this Court pursuant to 28 U.S.C. § 1402(a)(2). This is a civil
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`action against the United States, and Express Scripts’ principal place of business is located
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`within the judicial district and this division.
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`FILING AND DISALLOWANCE OF EXPRESS SCRIPTS’ CLAIM FOR REFUND
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`7.
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`On September 14, 2018, Express Scripts filed an amended federal income tax
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`return (Form 1120X) for its tax year ended December 31, 2012, claiming a refund of taxes paid
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`based on a deduction for its domestic production activities. Pursuant to Internal Revenue Code
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`Section 199, 26 U.S.C. § 199 (“Section 199”),3 Express Scripts reported a Domestic Production
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`Activities Deduction of $97,462,655 and claimed a refund in the amount of $35,431,314. On
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`April 20, 2021, the IRS refunded $1,468,737,59. The remaining claim for refund is $34,111,929.
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`3 Except as otherwise indicated, references to “Section” or to 26 U.S.C. are to the Internal Revenue Code of
`1986 as amended and in effect during the tax year at issue.
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`2
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`Case: 4:21-cv-00740-JCH Doc. #: 1 Filed: 06/22/21 Page: 3 of 7 PageID #: 3
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`8.
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`On March 15, 2021, the IRS denied Express Scripts’ claim for refund, stating that
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`Express Scripts did not qualify for the Domestic Production Activities Deduction.
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`9.
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`Pursuant to 26 U.S.C. § 6532(a)(1), Express Scripts may file a suit for refund of
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`taxes for the year at issue within two years from March 15, 2021.
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`FACTUAL ALLEGATIONS
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`10.
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`During the year at issue, Express Scripts’ customers included organizations that
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`managed prescription benefit plans, such as managed care organizations, health insurers, third-
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`party administrators, employers, union sponsored benefit plans, workers compensation plans, and
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`government health care plans (“Customers”). The Customers provided prescription benefits to
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`individuals who received prescription drug benefits through their employer, health plan, or
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`directly through Medicare Part D (“Plan Members”).
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`11.
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`During the year at issue, Express Script provided its Customers products and
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`services to help them manage their prescription benefit plans. Express Scripts provided its
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`Customers certain software, discussed below, as well as services, such as retail network
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`pharmacy management, drug formulary management, drug utilization management, and home
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`delivery pharmacy services.
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`12.
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`At issue in this litigation is Express Scripts’ software for performing claims
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`adjudication and related functions (the “Software”), which its Customers used to administer their
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`prescription benefit plans and to adjudicate claims made by the Customers’ Plan Members for
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`prescription benefits under those plans. Express Scripts produced the Software and licensed,
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`otherwise disposed of, or otherwise provided its Customers access to the Software for the
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`Customers’ direct use.
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`3
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`Case: 4:21-cv-00740-JCH Doc. #: 1 Filed: 06/22/21 Page: 4 of 7 PageID #: 4
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`13.
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`Claims adjudication was the process through which Customers verified and
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`processed prescription drug claims, including, but not limited to, verification of status as a Plan
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`Member, eligibility and drug coverage, determination of pricing details, co-payments, and
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`coordination of benefits. By using the Software, Customers fully automated their claims
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`adjudication process and provided Plan Members real-time adjudication and processing at the
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`point of sale.
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`14.
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`Express Scripts’ employees produced, in whole or in significant part, the
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`Software, in whole or in significant part within the United States, through the creation,
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`development, and improvement of the Software.
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`15.
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`Express Scripts licensed, otherwise disposed of, or otherwise provided its
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`Customers access to the Software for the Customers’ direct use, while connected to the Internet
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`or other public or private communications network, to adjudicate their Plan Members’
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`prescription drug claims.
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`16.
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`Other businesses derived on a regular and ongoing basis gross receipts from the
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`lease, rental, license, sale, exchange, or other disposition to their customers of software that was
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`substantially identical to Express Scripts’ Software and either affixed to a tangible medium (for
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`example, a disk or DVD) or by allowing customers to download the software from the Internet.
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`17.
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`From the customers’ perspective, the other businesses’ software had the same
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`functional result as Express Scripts’ Software, and had a significant overlap of features or
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`purpose with Express Scripts’ Software.
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`4
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`Case: 4:21-cv-00740-JCH Doc. #: 1 Filed: 06/22/21 Page: 5 of 7 PageID #: 5
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`CLAIM FOR THE 2012 TAX YEAR
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`18.
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`For the year at issue, Section 199 provided a deduction from federal income tax
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`based on income derived from domestic production activities (“Domestic Production Activities
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`Deduction”).
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`19.
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`For the year at issue, the Domestic Production Activities Deduction was equal to
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`9 percent of the lesser of (1) the taxpayer’s Qualified Production Activities Income (“QPAI”) or
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`(2) taxable income (determined without regard to Section 199), provided that the claimed
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`deduction did not exceed 50 percent of the W-2 wages properly allocable to Domestic
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`Production Gross Receipts (“DPGR”).
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`20.
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`DPGR were the gross receipts of the taxpayer that were derived from the license,
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`lease, rental, sale, exchange or other disposition of Qualifying Production Property (“QPP”) that
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`was manufactured, produced, grown, or extracted in whole or in significant part by the taxpayer
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`in whole or in significant part within the United States. QPAI was the taxpayer’s DPGR less the
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`costs of goods sold and deductions allocable to the DPGR.
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`21.
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`The Software was QPP that was produced in whole or in significant part by
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`Express Scripts in whole or in significant part within the United States.
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`22.
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`In the year at issue Express Scripts derived gross receipts from licensing or
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`otherwise disposing of the Software to its customers, and those gross receipts qualified as DPGR
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`under Section 199 and Treas. Reg. § 1.199-3(i)(6)(i).
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`23.
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`In the year at issue, Express Scripts derived gross receipts from providing its
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`Customers access to the Software for the Customers’ direct use while connected to the Internet
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`or other public or private communications network, and those gross receipts qualified as DPGR
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`under Section 199 and Treas. Reg. § 1.199-3(i)(6)(iii).
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`5
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`Case: 4:21-cv-00740-JCH Doc. #: 1 Filed: 06/22/21 Page: 6 of 7 PageID #: 6
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`24.
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`During the year at issue, Express Scripts derived DPGR in the amount of
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`$58,070,930,241 from licensing, otherwise disposing of, or otherwise providing its Customers
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`access to the Software for the Customers’ direct use while connected to the Internet or other
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`public or private communications network.
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`25.
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`During the year at issue, Express Scripts had costs of goods sold allocable to its
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`DPGR of $55,038,018,903, and deductions and losses allocable to its DPGR in the amount of
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`$1,949,992,951, resulting in QPAI of $1,082,918,387.
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`26.
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`During the year at issue, 9 percent of Express Scripts’ QPAI was $97,462,655,
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`which was less than both (i) Express Scripts’ taxable income for the year, and (ii) 50 percent of
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`the W-2 wages properly allocable to Express Scripts’ DPGR for the year. Therefore, Express
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`Scripts’ Domestic Production Activities Deduction under Section 199 was $97,462,655.
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`27.
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`The IRS illegally and wrongfully denied Express Scripts’ claim for refund.
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`PRAYER FOR RELIEF
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`WHEREFORE, Express Scripts respectfully requests that the Court grant the following relief:
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`a. That this Court enter judgment in favor of Express Scripts and against the United States,
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`in the total amount of $34,111,929, or such greater amount as this Court may determine to be
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`legally refundable, together with statutory interest thereon as provided by law;
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`b. That this Court award Express Scripts its costs, including attorneys’ fees, and such other
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`and further relief as this Court deems just and proper.
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`6
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`Case: 4:21-cv-00740-JCH Doc. #: 1 Filed: 06/22/21 Page: 7 of 7 PageID #: 7
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`Respectfully submitted,
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`BRYAN CAVE LEIGHTON PAISNER LLP
`
`
`By: /s/ Jonathan B. Potts
`Jonathan B. Potts, #64091MO
`One Metropolitan Square
`211 N. Broadway, Suite 3600
`St. Louis, MO 63102
`jonathan.potts@bclplaw.com
`(314) 259-2403
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`Attorneys for Plaintiffs
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`Of counsel:
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`CROWELL & MORING LLP
`
`Dwight N. Mersereau
`David B. Blair
`S. Starling Marshall
`1001 Pennsylvania Ave., NW
`Washington, DC 20004
`Dmersereau@Crowell.com
`Dblair@Crowell.com
`SMarshall@Crowell.com
`(202) 624-2856
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`7
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