Taxation – Business losses – ‘Carryforwards’

Where the defendant was granted summary disposition in a tax case regarding whether the plaintiff properly claimed business losses, that judgment should be upheld despite the plaintiff’s argument that it was permitted to claim “carryforwards” for business losses.

“In this tax case involving whether plaintiff properly claimed business losses, plaintiff appeals as of right the Court of Claims order granting defendant summary disposition under MCR 2.116(C)(6) (duplicative case) and (C)(8) (failure to state a claim) in two consolidated cases. Plaintiff challenges both grants of summary disposition, arguing that it was permitted to claim ‘carryforwards’ for business losses, which defendant disputed. The Court of Claims agreed with defendant in a thorough, concise, and well-written opinion. We affirm.

“Plaintiff is part of a unitary business group (UBG), and holds residual interests in real estate mortgage investment conduits (REMICs). A REMIC is a special purpose vehicle used to pool mortgage loans and issue mortgage-backed securities. The Internal Revenue Code (IRC), 26 USC 1 et seq ., treats income obtained through REMICs in a specialized way. The IRC essentially provides that the income generated from a REMIC, which is called excess inclusion income (EII), cannot be offset from any net operating loss (NOL) for a tax year. Therefore, even if a taxpayer has significant losses in a tax year, it cannot use those losses to completely offset the EII in that year. EII is essentially minimum income that must always be reported as such and taxed. However, although a taxpayer can never use NOLs to completely offset the EII, the taxpayer is permitted by the IRC to carry those losses forward to subsequent years.

“This appeal involves two consolidated cases in the Court of Claims involving similar tax issues. The first case (‘the 2018 Case’) originally involved only plaintiff’s 2018 tax return (‘the 2018 Return’) filed under the Michigan Corporate Income Tax Act (CITA), MCL 206.601 et seq . The second case (‘the 2015-2017 Case’) involved both the 2018 Return and plaintiff’s amended corporate income tax (CIT) returns filed for years 2015-2017 (‘the CIT Amended Returns’ or ‘the Amended Returns’).

“The issue raised in the two consolidated cases was how the IRC’s treatment of REMICs and EII affects plaintiff’s CIT returns.

“We conclude that the Court of Claims did not err by determining that the CIT Amended Returns did not support the 2018 Return because plaintiff used the incorrect starting point for its FTI.

“We affirm the Court of Claims order granting defendant summary disposition because the CIT Amended Returns did not support the 2018 Return because plaintiff used the incorrect starting point for its FTI, and because the 2015-2017 Case was duplicative to the 2018 Case.”

Credit Suisse Holdings (USA) Inc. & Subsidiaries v. Dep't of Treasury; MiLW 08-108012, 8 pages; Michigan Court of Appeals unpublished per curiam; Jansen, J., Murray, J., O’Brien, J.; on appeal from Court of Claims; Mary Kay M. Martire for appellant; David W. Thompson for appellee.

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