Illinois: Administrative Hearing Ruling Forces Combination of UNITARY Group

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The Illinois Department of Revenue Office of Administrative Hearings has ruled that two groups of businesses under common ownership were related (enough) through strong centralized management by a common parent and functional integration, that they should be forced to file one combined return. The taxpayers in the ruling claimed they were separate unitary businesses. See Ill. Dept. of Rev., Administrative Hearing IT 09-9, 8/24/09 for more details.

I like this case because it provides a good example of how the facts are analyzed in a case involving a unitary determination.

According to the taxpayer, the taxpayer operated two separate and unrelated businesses despite being owned by one common parent and having centralized management. The IL DOR claimed, and the Administrative Law Judge agreed, the evidence of centralized management was strong enough to make the two groups unitary and force combination.


As you may or may not know, unitary cases are extremely fact sensitive and open to judgement. Therefore, every case is unique and could go either way. Every state usually lacks uniformity in its laws, but there are several factors that most, if not all, states consider when addressing unitary issues. They are similar to Illinois' definition below:

The term “unitary business group” means a group of persons related through common ownership whose business activities are integrated with, dependent upon and contribute to each other … Unitary business activity can ordinarily be illustrated where the activities of the members are: (1) in the same general line (such as manufacturing, wholesaling, retailing of tangible personal property, insurance, transportation or finance); or (2) are steps in a vertically structured enterprise or process …; and, in either instance, the members are functionally integrated through the exercise of strong centralized management (where, for example, authority over such matters as purchasing, financing, tax compliance, product line, personnel, marketing and capital investment is not left to each member).


Most states consider or presume groups of companies with common ownership to be unitary. It is up to taxpayers to rebut that presumption.

If you are operating a group of companies which have common ownership, but lack other "forms of connectivity," there may be an opportunity to consider those companies as separate taxpayers, and not unitary.

This not only applies to C corporations, but also to tiered groups of pass-through entities (S corporations, limited liability companies, partnerships) and their owners.

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