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Decision on Unitary Group Stands after Michigan Supreme Court Ruling

On January 24, 2017, the Michigan Supreme Court denied the application filed by the Michigan Department of Treasury (the "Department") for leave to appeal the Court of Appeals' published decision in LaBelle Management v Michigan Department of Treasury, 315 Mich App 23; 888 NW2d 260 (2016). The Supreme Court's order concludes the matter and extinguishes the Department's appeal rights. By the terms of the Court of Appeals' May 5, 2016 stay order, the stay is no longer in effect, and the Court of Appeals' decision is now binding authority.

The Court of Appeals' opinion bars Treasury's use of the attribution rules of IRC § 318 to deem ownership or control in order to identify members of unitary business groups under section 117(6) of the Michigan Business Tax. Instead, the statutory reference to "indirect" ownership or control means actual ownership or control through an intermediary, for example, a nominee, a trustee or a subsidiary. Neither Treasury nor the taxpayer can use backwards attribution to create greater-than-50-percent ownership interests where no single shareholder actually owns or controls an interest greater than 50 percent; but if ownership or control exists through an intermediary, it is counted in determining whether the greater-than-50-percent test is met.

See our original advisory outlining details of the matter, Recent Michigan Business Tax Ruling Clarifies the Meaning of ‘Indirect’ Ownership.

© 2017 Varnum LLP


About this Author

Thomas J. Kenny, Varnum, Criminal Tax Litigation Attorney, Franchise Income Lawyer

Tom is a partner in the firm's tax group. His practice includes civil and criminal tax litigation. He was employed by the Department of Attorney General, State of Michigan from 1979 to 1987, where he acted as legal counsel to the Department of Treasury in litigation matters before the Michigan Tax Tribunal, Court of Claims and Court of Appeals. Prior to his employment with the Michigan Attorney General, he was an assistant prosecuting attorney in Detroit and handled criminal litigation and appeals.

Jack M. Panitch, Tax Planning Lawyer, Varnum, Complex Negotiating Settlements Attorney

Jack is a member of the firm’s tax team. He has extensive experience litigating cases in the Michigan Tax Tribunal, the Court of Claims and the Court of Appeals. He is also experienced in tax controversy litigation, with a particular focus on state and local tax requirements for non-profit organizations, and U.S. and foreign air carriers and their employees. Jack has extensive experience in administrative and judicial forums and related negotiations for the settlement of complex cases. Jack began his career with the federal government, serving in the Tax Litigation Division of the Office of Chief Council, IRS, and as Attorney-Advisor to the Honorable Edna G. Parker of the U.S. Tax Court.

John C Ray, Certified Public Accountant, Varnum, Tax Litigation Support
Certified Public Accountant

John is a certified public accountant who focuses on federal and multi-state controversies, audits, tax planning and litigation support.

John was formally employed by the Michigan Department of Treasury for 28 years as an auditor, audit supervisor and audit manager for Michigan sales, use, personal income, motor fuel and single business taxes audits.

Wayne D. Roberts, Varnum, Tax Revenue Lawyer, income Litigation attorney, Michigan

Wayne is a member of Varnum’s Tax Team. His practice includes all aspects of federal and state tax planning and tax litigation. He represents both closely-held and Fortune 100 companies in tax disputes with the IRS, the Michigan Department of Treasury, and revenue departments in Pennsylvania, Indiana, Tennessee, New York, California and numerous other state and local taxing jurisdictions.