1
EXHIBIT 10.15
AMENDED AND RESTATED
AGREEMENT FOR THE ALLOCATION OF
INCOME TAX LIABILITIES AND BENEFITS
This tax allocation agreement ("Agreement"), amended and restated as of
January 1, 1994, is made by and among CMS Energy Corporation, a Michigan
corporation ("CMS"), each of the corporations that are members of the
Consolidated Group (as defined in Section 1) as of the date hereof, and each of
the corporations that become members of the Consolidated Group from time to
time thereafter, (each such corporation being referred to herein as
"Subsidiary" and together as "Subsidiaries").
RECITALS
Each of the parties hereto are members of the Consolidated Group. Consumers
Power Company ("Consumers") was the common parent of the Consolidated Group
prior to May 26, 1987. CMS became the common parent of the Consolidated Group
on May 26, 1987, pursuant to a reorganization that continued the existence of
the Consolidated Group and replaced Consumers with CMS as common parent.
The Consolidated Group elected to file consolidated Federal income tax returns
for all tax years beginning with 1973 and CMS intends to continue to file a
consolidated Federal income tax return for each taxable year for which the
Consolidated Group is required or permitted to file a consolidated Federal
income tax return.
The Consolidated Group filed an election with the Internal Revenue Service,
beginning with tax year 1973, to allocate its tax liabilities and benefits for
all Consolidated Years in accordance with certain methods permitted by Treasury
Regulations (the "Separate Taxable Income Method") and has applied such methods
both for Federal income tax purposes and for financial reporting purposes. A
copy of that election is attached as Exhibit A hereto.
The parties desire that the income tax liabilities and benefits of each member
of the Consolidated Group, resulting from the filing of consolidated Federal
income tax returns, continue to be allocated for Federal income tax purposes
using the Separate Taxable Income Method. However, for financial reporting
purposes, for all Consolidated Years after December 31, 1993, the parties
intend to use the method of allocation described herein. The parties believe
that the method described herein conforms generally to the Separate Taxable
Income Method, but to the extent of any conflict, the parties intend that the
method described herein shall prevail believing that it best furthers their
desire that no cross-subsidies arise between the utility and nonutility
activities of the Consolidated Group.
2
2
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. Definitions. The following terms as used herein shall have the
meaning set forth below:
1.1 "Applicable Quarterly Percentage" means the quarterly
percentage determined by the CMS Corporate Tax Department for each estimated
payment, necessary to comply with and avoid underpayment penalty under Code
Section 6655.
1.2 "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any predecessor or successor thereto, and "Treas. Reg."
means the regulations issued under the Code.
1.3 "Consolidated Group" means the affiliated group of
corporations, as defined in Section 1504(a) of the Code, of which CMS is the
common parent, and which has duly elected to file a Consolidated Return.
1.4 "Consolidated AMT Liability" means the alternative minimum
tax imposed on the Consolidated Group for the Consolidated Year under Section
55(a) of the Code, calculated without regard to credits available to reduce
such liability.
1.5 "Consolidated Return" means a consolidated Federal income
tax return filed with respect to the Consolidated Group pursuant to Section
1501 of the Code.
1.6 "Consolidated Regular Tax Liability" means the regular
Federal income tax liability of the Consolidated Group for the Consolidated
Year, determined under Treas. Reg. Section 1.1502-2, applying the actual
credits allowable on the Consolidated Return (whether applied to reduce regular
tax or AMT tax).
1.7 "Consolidated Tax Liability" means the Consolidated Regular
Tax Liability plus the Consolidated AMT Liability.
1.8 "Consolidated Year" means a taxable period for which a
Consolidated Return is filed.
1.9 "Excess Credits" has the meaning assigned to that term in
Section 5, below.
1.10 "Excess FTC" has the meaning assigned to that term in
Section 5, below.
3
3
1.11 "Member" means, with respect to all or a portion of each
Consolidated Year, each member of the Consolidated Group.
1.12 "OFL" means an overall foreign loss as defined in Section
904(f)(2) of the Code, a separate limitation loss as defined in Section
904(f)(5)(E) of the Code, or a foreign oil extraction loss as defined in
Section 907(c)(4)(B) of the Code, as the context requires, and in each case
determined on an aggregate basis for all taxable years (net of recapture).
1.13 "Positive AMT Liability" has the meaning assigned to that
term in Section 4, hereof.
1.14 "Separate Credits" has the meaning assigned to that term
in Section 5, below.
1.15 "Separate Losses" has the meaning assigned to that term in
Section 5 below.
1.16 "Separate Taxable Income" means, with respect to any
Member, the positive separate taxable income of such member, if any, for the
Consolidated Year determined under Treas. Reg. Section 1.1502-12 and adjusted
under Treas. Reg. Section 1.1552-1(a)(1)(ii).
1.17 "Separate Tax Benefits" of any Member with respect to a
Consolidated Year means the amount determined under Section 5, hereof.
1.18 "Separate Return Tax Liability" means, with respect to any
Member, the separate return tax liability of such member for the Consolidated
Year determined under Treas. Reg. Section 1.1552-1(a)(2)(ii), without regard to
Positive AMT liability and applying the actual credits that would have been
allowable had such Member filed on a separate company basis.
1.19 "Separate Tax Liability" of a Member means, with respect to
a Consolidated Year, the sum of the amounts determined under Sections 3 and 4,
hereof.
1.20 "Stand Alone Tax Liability" means the tax liability of a
Member based on the member's separate items of income, deductions and credits,
computed as if the Member had filed a separate return for the year, without
giving effect to any items of consolidation, and without regard to the
graduated rates imposed under Section 11(b) of the Code.
2. Consolidated Tax Returns. CMS and each Subsidiary acknowledge
that a consolidated Federal income tax return has been, and shall continue to
be, filed by CMS for the Consolidated Group for each taxable year. CMS and
each Subsidiary agree to allocate the Federal income tax liabilities and
benefits reported by the Consolidated Group in the manner provided in this
Agreement and to make the payments required by this Agreement at such time and
in such manner as set forth in this Agreement.
4
4
3. Regular Tax Liability Allocation. The Consolidated Regular Tax
Liability for each Consolidated Year shall be allocated among the Members with
Separate Taxable Income pro rata with the ratio that each such Member's
Separate Taxable Income bears to the sum of the Separate Taxable Incomes of all
Members. An additional amount shall be allocated to each Member equal to 100%
of the excess, if any, of (i) the Separate Return Tax Liability of such Member
for the Consolidated Year over (ii) the Consolidated Regular Tax Liability
allocated to such Member in accordance with the first sentence of this section.
4. Alternative Minimum Tax Liability Allocation. For each
Consolidated Year for which the Consolidated Group has a Consolidated AMT
Liability, the Consolidated AMT Liability shall be allocated among the Members
with a Positive AMT Liability pro rata with the ratio that each such Member's
Positive AMT Liability bears to the sum of the Positive AMT Liability of all
Members. For purposes of this computation, Positive AMT Liability exists for
any Member for whom the tentative minimum tax exceeds the regular tax of such
Member for the Consolidated Year. In making this computation, the tentative
minimum tax and the regular tax of such Member shall be calculated, on a
separate company basis, in the manner prescribed by Section 55 of the Code,
except that a negative amount of tentative minimum tax or regular tax shall be
deemed to exist for any Member for which negative alternative minimum taxable
income or negative taxable income, respectively, exists for the Consolidated
Year.
5. Separate Tax Benefits. For each Consolidated Year, CMS shall
determine, with respect to each Member, (a) the amount of losses or deductions
which do not reduce such Member's Separate Return Tax Liability, if any,
including carryovers ("Separate Losses") but which reduce the Consolidated Tax
Liability and (b) the amount of credits, if any, including carryovers
("Separate Credits") which reduce the Consolidated Tax Liability whether or not
they reduce the Separate Return Tax Liability of the Member (the amount of such
Separate Losses and Separate Credits as adjusted in this Section 5 and Sections
8 and 9 being called herein, with respect to any Member, "Separate Tax
Benefits"). In making the determination of Separate Tax Benefits, the
following rules shall apply:
(a) CMS shall be deemed to have utilized such Separate Losses and
Separate Credits in the order and priority as permitted or
required under the Code.
(b) Separate Losses or Separate Credits of equal priority that cannot
be fully utilized will be allocated among the Members which
generated such Separate Losses or Separate Credits
proportionately to such Separate Losses or Separate Credits.
(c) If, after application of paragraphs (a) and (b) above (except as
to foreign tax credits limited by the foreign tax credit
limitation under Code Section 904 separately provided for under
paragraph (d) below), there are Members with credits that would
have been utilized on a separate company basis in the aggregate
in excess of the amount utilized on the Consolidated Return
("Excess Credits"), then such Members shall have their Separate
Tax Benefits increased, and the Members generating the Separate
Losses, tax preference items, or other tax attributes responsible
for the reduction in the Separate Credits shall
5
5
have their Separate Tax Benefits decreased, so as to equitably
shift such Separate Tax Benefits. If any Member's Separate Tax
Benefits are decreased under this paragraph (c), then, in
subsequent allocations, for all purposes of this Agreement,
including this paragraph (c), such Member shall be assigned such
Excess Credits to the extent it has had a decrease in its
Separate Tax Benefits.
(d) If, by reason of application of the foreign tax credit
limitations under Code Section 904, the sum of the foreign tax
credits utilized by the Members in computing their Separate
Return Tax Liabilities is greater than the foreign tax credits
utilized to reduce the Consolidated Tax Liability, then the
Separate Tax Benefits of such Members shall be increased by such
excess ("Excess FTC") and the Separate Tax Benefits of those
Members with OFLs shall be decreased (if necessary, below zero)
in proportion to each such Member's OFL computed on a separate
company basis. In computing the OFL on a separate company basis
of any Member for this purpose, the foreign source income of one
Member from the current year can offset the foreign source loss
of a second Member, but only after the foreign source income of
the first Member is first applied to offset any existing OFL of
such first Member. If a Member leaves the Consolidated Group,
and, as a result, there is a difference between the aggregate OFL
of the remaining Members as determined under this Agreement and
under the Treasury Regulations, then such difference shall be
eliminated by equitably distributing such difference among the
remaining Members. If any Member's Separate Tax Benefits are
decreased under this paragraph (d), then, in subsequent
allocations and for all other purposes of this Agreement,
including this paragraph (d), such Member shall be assigned such
Excess FTC to the extent it has had a decrease in its Separate
Tax Benefits.
The computation of foreign tax credits on a separate company
basis, solely for the purpose of this paragraph (d), shall be
made without regard to an election on the Consolidated Return to
take a deduction for foreign taxes in lieu of a credit, but in
that event the Separate Tax Benefits credited and charged under
this paragraph (d) shall be reduced to reflect the mitigating
effect of the deduction.
(e) If the net of the positive and negative Separate Tax Benefits
allocated under this Section 5 exceeds the aggregate of the
additional amounts allocated under the second sentence of Section
3, then the Separate Tax Benefits allocated to Members with
positive Separate Tax Benefits (after application of paragraphs
(a) through (d) above) shall be reduced in an equitable manner
(first taking into account the extent to which a Member has
effectively benefited from its Separate Tax Benefits in
calculating its Separate Return Tax Liability) so that the net of
the positive and negative Separate Tax Benefits allocated under
this Section 5 equals the aggregate of the additional amounts
allocated under the second sentence of Section 3.
6
6
(f) AMT Credits for regular tax purposes shall be allocated to the
Members in a manner consistent with the allocation of the
Consolidated AMT Liability under Section 4 hereof.
6. Payments. Each Subsidiary shall provide CMS, thirty days before
the day on which a periodic consolidated Federal income tax installment
(including the estimated tax installments and the installment required on the
due date before extension of the return) is due for any Consolidated Year, all
information requested by CMS to calculate such installment. Each Subsidiary
shall pay to CMS its estimated Stand Alone Tax Liability multiplied by the
Applicable Quarterly Percentage, less previous payments made for such tax year.
CMS shall invoice each Subsidiary for any such amount five business days prior
to the date CMS is obligated to make any such payment. The amounts due may be
paid either by the actual remittance of cash or via inter-company accounts, as
determined by CMS.
7. Reconciliation of Tax Liability. After the close of each
Consolidated Year, CMS shall reconcile payments made by each Subsidiary under
Section 6 hereof with the Separate Tax Liability and the Separate Tax Benefits
attributable to each Subsidiary that results or is expected to result from the
filing of the Consolidated Return. A tentative reconciliation shall be made by
April 30 and a final reconciliation shall be made by November 15 of the year
following the Consolidated Year. CMS shall invoice each Subsidiary and each
Subsidiary shall pay to CMS any additional amount due, or receive payment from
CMS for any overpayment or Separate Tax Benefit, based upon such
reconciliation, within 15 days. The amounts due may be paid either by the
actual remittance of cash or via inter-company accounts, as determined by CMS.
8. Adjustments to Tax Liability. If any adjustments are made to the
income, gains, losses, deductions, or credits pertaining to any Member with
respect to any Consolidated Year, as reported in a Consolidated Return, by
reason of the filing of an amended return or claim for refund, or arising out
of an audit of such Consolidated Return by the Internal Revenue Service, then
the Separate Tax Liabilities or Separate Tax Benefits, as the case may be, of
each Member shall be redetermined to give effect to any such adjustments as if
it had been made as part of the filed Consolidated Return. If any interest or
penalty is to be paid or interest received as a result of a tax deficiency or
refund, such interest or penalty shall be allocated in accordance with the
item(s) giving rise to such interest or penalty. Either CMS or the Subsidiary
affected may contest or cause to be contested any adjustments to income, gains,
losses, deductions, credits or interest or penalty assessments and the
reasonable costs incurred in contesting such adjustments or assessments shall
be allocated upon such basis as is mutually agreed to by CMS and the Subsidiary
affected in advance of such contest. If, as a result of such redetermination,
any amounts due to CMS or any of the Subsidiaries under this Agreement, as the
case may be, shall exceed the amounts previously paid to such Member, then
payment of such excess shall be made by the appropriate member, as the case may
be, within 30 days after the earliest date on which (i) CMS shall pay, or be
deemed to have paid, any additional taxes resulting from any such adjustment,
(ii) CMS shall receive, or be deemed to have received, a refund of taxes
resulting from any such adjustment or (iii) such adjustment shall become final;
provided,
7
7
however, that no payment between CMS and a Subsidiary pursuant to (i) or (ii),
above, shall be considered a final determination of such amount until the
adjustment with respect to which the redetermination was made becomes final.
For purposes of this Section 8, an adjustment shall become final at the time of
the expiration of the applicable statute of limitations with respect to the
taxable period to which such adjustment relates (or, if earlier, the date on
which a closing agreement with the IRS becomes binding), or, if such adjustment
was made pursuant to a decision of a court, at the time such decision shall
become final and the resulting tax deficiency or overpayment, including
interest, has been finally determined and paid by or refunded to CMS.
9. Carryovers and Carrybacks. If, for any Consolidated Year, a Member
has losses or credits which, under the Code, may be carried back to any
Consolidated Year in which the Consolidated Group filed a Consolidated Return
which included such Subsidiary, and such losses or credits give rise to a
reduction in the tax liability of the Consolidated Group that would not have
arisen if such Subsidiary were excluded from the Consolidated Group for any
such Consolidated Year, then the Separate Tax Liabilities or Separate Tax
Benefits, as the case may be, of each Member shall be redetermined in
accordance with Section 8.
If all or part of an unused loss or tax credit is allocated to a Member
pursuant to Treas. Reg. Section 1.1502-79 and is carried back or forward to a
year in which such Member filed a separate return or a consolidated return with
another affiliated group, any refund or reduction in tax liability arising from
the carryback or carryover shall be retained by such Member. Notwithstanding
the above, CMS shall determine whether an election shall be made not to carry
back the consolidated net operating loss for any taxable year in accordance
with Section 172(b)(3)(C) of the Code.
10. Miscellaneous.
10.1 Administration. This Agreement shall be administered by
the Corporate Tax Department of CMS. In administering this Agreement, the
Corporate Tax Department of CMS, in its reasonable discretion, may make such
determinations as it deems appropriate to effectuate the purposes of this
Agreement, consistent with past practices and any changes in tax laws.
10.2 Consents, Waivers, etc. CMS and each Subsidiary agrees to
execute and file such consents, waivers and other documents as may be necessary
to effect the provisions of this Agreement.
10.3 Verification of Computation. CMS shall provide to each
Subsidiary, upon the reasonable request of such Subsidiary, such copies of the
computations of all amounts payable under this Agreement as may be necessary to
verify such computations; provided, however, that CMS is satisfied that the
requesting Subsidiary can maintain the confidentiality of such information.
8
8
10.4 Successors and Beneficiaries. This Agreement may not be
assigned, pledged, transferred or hypothecated by any Subsidiary without the
express written consent of CMS.
If during any Consolidated Year, CMS or any Subsidiary acquires
or organizes another corporation that is required to be included in the
consolidated Federal income tax return, then such corporation shall, by such
action, be deemed to have become a party to and be bound by this Agreement as
of the date upon which such corporation became a member of the Consolidated
Group.
This Agreement shall be binding upon and inure to the benefit of
any successor, whether by merger, acquisition of assets or otherwise, to any of
the parties hereto, to the same extent as if the successor has been an original
party to this Agreement.
10.5 Termination. This Agreement shall apply to all
Consolidated Years ended on or after December 31, 1994, unless earlier
terminated by written agreement of the parties. Notwithstanding termination of
this Agreement, its provisions will remain in effect with respect to any period
of time during the taxable year in which the termination or expiration occurs
for which the income or loss of any Subsidiary must be included in the
Consolidated Return of CMS. In addition, such termination or expiration shall
not relieve any party of any obligation arising hereunder with respect to
Consolidated Years covered by this Agreement.
In Witness Whereof, the parties hereto have caused this Agreement
to be executed as of the date hereof by their duly authorized officers on their
own behalf, and on behalf of their Subsidiaries.
CMS ENERGY CORPORATION by:_________________________________
CONSUMERS POWER COMPANY by:_________________________________
CMS ENTERPRISES COMPANY by:_________________________________
CMS ENERGY FINANCE CORPORATION by:_________________________________
CMS CAPITAL CORP. by:_________________________________
CMS LAND COMPANY by:_________________________________
CMS NOMECO OIL & GAS CO. by:_________________________________
CMS UTILITY SERVICES, INC. by:_________________________________
KJL LIMITED, INC. by:_________________________________
CMS ELECTRIC MARKETING COMPANY by:_________________________________
CMS GAS MARKETING COMPANY by:_________________________________
CMS GAS TRANSMISSION AND STORAGE CO. by:_________________________________
MONARCH MANAGEMENT COMPANY by:_________________________________
