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U24. (Answer rescinded, replaced by U52) If five or fewer persons who are unrelated individuals, estates or trusts own a controlling interesting in a brother-sister group of entities, will that satisfy the control test for purposes of qualifying as a unitary business group?
 
Answer:
No, so long as none of the five or fewer unrelated individuals, estates or trusts own more than 50% of the brother-sister group of entities.

Under the MBT, a unitary business group is:

a group of United States persons, other than a foreign operating entity, 1 of which owns or controls, directly or indirectly, more than 50% of the ownership interest with voting rights or ownership interests that confer comparable rights to voting rights of the other United States persons, and that has business activities or operations which result in a flow of value between or among persons included in the unitary business group or has business activities or operations that are integrated with, are dependent upon, or contribute to each other. For purposes of this subsection, flow of value is determined by reviewing the totality of facts and circumstances of business activities and operations. [MCL 208.1117(6).]

The Department will follow IRC 318 or analogous authority to determine indirect, or constructive, ownership and control, except that the Department will apply IRC 318 to all ownership interests.

Under the SBT, controlled groups and entities under common control were generally defined to include situations where the same five or fewer unrelated individuals, estates or trusts owned a controlling interest in two or more entities taking into account the ownership of each such person only to the extent such ownership is identical with respect to such entity. See, e.g., RAB 1989 48. However, so long as none of the five or fewer unrelated individuals, estates or trusts own more than 50% of the brother-sister group of entities, these control tests under the SBT do not apply to the MBT for purposes of determining a unitary business groups.


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