DALLAS, Sept. 27, 2016 /PRNewswire/ -- The Michigan Court of Appeals recently upheld the Michigan Department of Treasury's ("Department's") denial of taxpayers' bad debt deductions in Ally Financial, Inc. v. Department of Treasury. The taxpayers in this case were motor vehicle finance companies, who provided retail installment loans to car purchasers. When car purchasers defaulted on their contracts and did not repay the full purchase price and sales tax owed, the Plaintiffs repossessed the vehicles, sold them, and applied the proceeds to the outstanding loan balances. However, the proceeds of these sales did not cover the entire unpaid balance, so the Plaintiffs claimed the remaining balances on their federal tax returns as "bad debts" under Internal Revenue Code, 26 USC 166. The Department denied their claim, and the taxpayers appealed.
The Department's denial was based on several factors:
- The taxpayer's written election designating which party may claim the deduction was insufficient under Mich. Comp. Laws § 205.54i(3) because it applied only to "currently existing" loans and, therefore, did not cover the accounts for which the taxpayer sought a deduction.
- The taxpayer did not submit RD-108 Application for Michigan Title and Registration Statement of Vehicle Sale, which is the form used to document a vehicle sale.
- The taxpayer included repossessed property in its claim.
The Appellate Court ("Court") found that the language in Mich. Comp. Laws § 205.54i(3) was clear, and as such, the taxpayer's election, which was executed after the bad debts were written off and was limited to "currently existing" loans, was insufficient to demonstrate the right to a refund or an exemption. The Court further determined that the Department was within its rights to require RD-108 from the taxpayer because the plain language of Mich. Comp. Laws § 205.54i gave the Department the authority to determine what evidence was required to support a bad debt claim. Lastly, the Court also agreed with the Department's position that repossessed property is not to be included in a bad debt claim. Based on all of these factors, the Court ruled in favor of the Department and upheld the bad debt denial.
Ryan is an award-winning global tax services firm, with the largest indirect and property tax practices in North America and the seventh largest corporate tax practice in the United States. With global headquarters in Dallas, Texas, the Firm provides a comprehensive range of state, local, federal, and international tax advisory and consulting services on a multi-jurisdictional basis, including audit defense, tax recovery, credits and incentives, tax process improvement and automation, tax appeals, tax compliance, and strategic planning. Ryan is a five-time recipient of the International Service Excellence Award from the Customer Service Institute of America (CSIA) for its commitment to world-class client service. Empowered by the dynamic myRyan work environment, which is widely recognized as the most innovative in the tax services industry, Ryan's multi-disciplinary team of more than 2,100 professionals and associates serves over 12,000 clients in more than 40 countries, including many of the world's most prominent Global 5000 companies. More information about Ryan can be found at ryan.com.
Available Topic Expert(s): For information on the listed expert(s), click appropriate link.
ProfNet - https://profnet.prnewswire.com/Subscriber/ExpertProfile.aspx?ei=112044
ProfNet - https://profnet.prnewswire.com/Subscriber/ExpertProfile.aspx?ei=113520
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/michigan-court-of-appeals-rules-bad-debt-denial-was-proper-300334936.html