Just as we went to press, the New York State Tax Appeals Tribunal reversed the decision of an Administrative Law Judge and held that two related companies could file combined reports for the 2007 year, in which the statute had changed to require or permit combined reporting whenever there were substantial intercorporate transactions. Matter of Knowledge Learning Corporation and Kindercare Learning Centers, Inc., DTA Nos. 823962 & 823963 (N.Y.S. Tax App. Trib, Sept. 18, 2014).  The Tribunal, unlike the ALJ, found that the companies did engage in substantial intercorporate transactions, and explicitly found that employees had been transferred from two entities to a related company, relying on witness testimony as well as evidence such as federal unemployment tax returns and documents indicating the company’s strategy and business purpose for creating a single entity, and also found that the transfer had economic substance. Since the Tribunal found substantial intercorporate transactions, it did not need to consider whether distortion otherwise existed on separate returns, but it nonetheless expressly reversed the ALJ’s controversial conclusion that distortion is no longer a factor for determining combined reporting after the 2007 statutory change, finding that combined reports may be filed, even in the absence of substantial intercorporate transactions, when “necessary to properly reflect income and avoid distortion.”