Tax News

CCH (cch.taxgroup.com) reports:

While there is no statutory provision that permits imposition of Illinois franchise tax on limited liability companies (LLC), an LLC had to pay the franchise tax liability of a corporation that merged into the LLC, according to the Illinois appellate court. In addition, the court determined that the tax was due and rejected the LLC's constitutional challenge to the tax.
Within the space of six months, a Delaware corporation with its principal place of business in Illinois had undergone a reorganization that increased its paid-in capital and subsequently was merged into a newly formed Delaware LLC. After the merger, the LLC attempted to file a report with the Illinois Secretary of State showing a net decrease in the corporation's paid-in capital from the reorganization and merger that would have resulted in no tax being due. The Secretary rejected the filing, explaining that the increase in paid-in capital caused by the reorganization could not be offset by the decrease in paid-in capital resulting from the merger. Under protest, the LLC filed another report and tendered a check for over $2 million, which the Secretary accepted and deposited in a protest fund. The LLC then sought and was granted a preliminary injunction in court to keep the state treasurer from transferring the money. The trial court also subsequently determined that the money should be reimbursed to the LLC.