Opinion ID: 839705
Heading Depth: 1
Heading Rank: 3

Heading: work-loss benefits

Text: The issue concerning work-loss benefits is one of first impression. It is whether someone can recover work-loss benefits under MCL 500.3107(1)(b) if he or she is the sole employee and shareholder of a subchapter S corporation that lost more money than it paid in wages. Defendant contends that plaintiff, who is such a person, is not entitled to benefits. Defendant points out that a subchapter S corporation's profits and losses pass through to the shareholders for tax purposes. Accordingly, it argues, plaintiff should be treated like an unincorporated sole proprietor, which means that, when his income is calculated, his gross receipts must be reduced by his business expenses. The Court of Appeals rejected this argument. In holding that the corporation's losses were irrelevant to computing plaintiff's work-loss benefits, the Court of Appeals stated: In this case, there is no dispute that (1) plaintiff received wages as an employee of the corporation and (2) plaintiff's remuneration from the corporation was not determined on the basis of the annual net income of the corporation. Plaintiff did not assert a work-loss claim based on the lost profits of the corporation. These facts distinguish this case from Adams. We reject defendant's argument that plaintiff's self-employment status dictates a calculation of the gross receipts of the corporation less the corporate expenses to determine plaintiff's net income. We emphasize that plaintiff as an individual received wages and was not remunerated on the basis of the gross receipts of the corporation. Defendant presents no evidence to justify the disregard of the long-held rule that `[t]he corporate entity is distinct although all its stock is owned by a single individual or corporation.' Moreover, [a corporation's] separate existence will be respected, unless doing so would subvert justice or cause a result that would be contrary to some other clearly overriding public policy. Because plaintiff received wages from the corporation, and because defendant has presented no evidence to the contrary, the business expenses of the corporation are irrelevant in calculating plaintiff's wage loss, and plaintiff is treated as being in no different position than an employee of any other corporation operating at a loss. The trial court correctly determined that plaintiff was entitled to work-loss benefits and properly granted his motion for summary disposition.[ [17] ] We conclude that the Court of Appeals reached the right result for the right reasons. Accordingly, we affirm its decision and hold that plaintiff is entitled to work-loss benefits based on his wages. Justice Corrigan argues in her partial dissent that defendant has created a factual question regarding the amount of plaintiff's loss of income from work. This ignores the legitimate distinction between a shareholder and the corporate entity that is established by Michigan law. What Justice Corrigan says about the nature of a subchapter S corporation is true: for federal income taxation purposes, the income and losses of a subchapter S corporation pass through to the individual shareholders as if the income and losses belonged to the members of a partnership. But her income analysis errs by suggesting that the blurring of corporate and shareholder identities for federal taxation purposes also blurs the separate legal identities created for those entities by the BCA. Indeed, the authority she relies on made clear that, for federal taxation purposes alone, a subchapter S corporation is merely analogous to a partnership or a sole proprietorship. There is no authority for Justice Corrigan's proposition that the distinct corporate identity created by Michigan law may be ignored. The corporation's income or losses are not the shareholder's income or losses for purposes of the no-fault act's work-loss-benefits provision. Neither the BCA nor the no-fault act supports her analysis. Thus, her statement that plaintiff and his wife had no taxable income in 2001, 2002, and 2003 [18] entirely misses the central point: regardless of whether he was subject to taxation under federal law, plaintiff indisputably received actual income in the form of W-2 wages in those years. Justice Corrigan seems to ignore the import of her own observation that plaintiff's work as the sole employee of his corporation resulted in no income but only overall lossesto the corporation. [19] The losses ultimately belonged to the corporation, not to plaintiff. At its core, Justice Corrigan's position would accomplish a de facto piercing of the corporate veil. It would do this even though the shareholder had not engaged in fraudulent or wrongful conduct that would justify a court's ignoring the corporate form. It would punish plaintiff for filing an election under subchapter S, a legitimate designation that permits him to report a loss for federal taxation purposes. Justice Corrigan indulges in speculation that defendant created a question of material fact to defeat summary disposition under MCR 2.116(C)(10). And she fails to explain how the undisputed proof of plaintiff's wages is an inaccurate reflection of his loss of income from work and how the corporation's losses could possibly diminish that figure. [20]