United States

Michigan: Treasury Issues Guidance on Application of LaBelle Management Decision

Mar 06, 2017
From KPMG TaxWatch

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On February 28, 2017, the Michigan Department of Treasury (Department) issued a notice explaining the manner in which it will apply the Michigan Court of Appeal’s decision in LaBelle Management. In this decision, the court invalidated the ownership test applied by the Department in determining when entities are included in a unitary group. Recall, guidance issued by the Department for both the Michigan Business Tax and Corporate Income Tax adopted an IRC section 318-type constructive ownership requirement in determining when a U.S. person indirectly owned other members of the group. In LaBelle, the appellate court rejected the Department’s application of IRC § 318 in determining whether the indirect ownership test was met and held that “indirect ownership” means ownership through an intermediary. The appellate court’s decision had been stayed pending exhaustion of the Department’s appeal rights; the Michigan Supreme Court declined to review and the stay is now lifted.

In its notice, the Department states that it will give the appeals court decision full retroactive effect for all open tax years for purposes of both the Michigan Business tax and the Corporate Income Tax. As such, unitary business groups are limited to those groups in which ownership or control is based on a parent-subsidiary chain of relationships. Brother-sister relationships will no longer meet the requisite control standard. To the extent that the designated member of an affected unitary group remains the designated member of a group that no longer contains all of its previous members after applying LaBelle, the designated member must file amended returns for all open years, including on those returns only those members that meet the control test under LaBelle. Those members that do not meet the control test under LaBelle must determine whether they are included in a separate unitary business group or are stand-alone filers for the open tax years. Such entities will be required to file amended returns, or original returns only for those tax periods within the statute of limitations. The Department will not assess these entities as non-filers for tax periods prior to that period, and penalties will not be imposed for amended unitary returns or original stand-alone returns that are a direct result of the LaBelle decision. The Department will waive interest for amended unitary returns or original stand-alone returns that are a direct result of LaBelle so long as those returns are filed by December 31, 2017. The notice provides specific instructions for filing returns under LaBelle, including that all returns should be identified as a “LaBelle” return. Please contact Mike Bozimowski at (313) 230-3183 with questions.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.