Income/Franchise:
Illinois: ALJ Says Affiliate Must be Included in Combined Return and is Not an 80/20 Company

Decision No. 16 TT 82 and 17 TT 16, Ill. Independent Tax Trib. (4/13/21). In a ruling involving a taxpayer filing Illinois income and replacement tax returns on a combined basis for the tax years at issue, an administrative law judge with the Illinois Independent Tax Tribunal recently denied the taxpayer’s motion for summary judgment – holding that it failed to successfully show it could exclude a certain affiliate from its return as an “80/20 company.” In doing so, the judge reasoned that a single-member limited liability company (SMLLC) owned by that affiliate must be disregarded under the facts as it “has no economic substance” and similarly the SMLLC cannot be considered the employer of certain expatriates, which potentially could have helped its owner (the taxpayer’s affiliate at issue) qualify as an 80/20 company. Consequently, the judge concluded that the affiliate cannot be considered an 80/20 company under the facts and, instead, must be considered a company conducting business within the United States and thus includable in the taxpayer’s Illinois unitary group. Please contact us with any questions.