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Contact Information:
Edward S. Kisscorni, CPA
290 Suncrest Court, SW
Grandville, MI 49418

Office: 616/233-0667
Cell: 616/443-6730
Fax: 616/233-0667

Blog: www.EdKisscorni.com/Blog1
Email: Ed@EdKisscorni.com
 



 



 

 Blog 
Monday, March 29 2010

House Bill 5937 (HB 5937) has passed both houses of the legislature by large margins.  The intent of the legislation is to reverse the effect of the Kmart decision of the Michigan Court of Appeals, except for Kmart.  If enacted, the Michigan Department of Treasury would be barred from assessing taxpayers who relied on Revenue Administrative Bulletin 1999-1.  The bill would also block refund claims for all taxpayers other than Kmart. 

 

Following is the amendatory language and enacting section:   

 

(8) Notwithstanding any other provision in this act, for a taxpayer that filed a tax return under former 1975 PA 228 that included in the tax return an entity disregarded for federal income tax purposes under the internal revenue code, both of the following shall apply:

 

(a) The department shall not assess the taxpayer an additional tax or reduce an overpayment because the taxpayer included an entity disregarded for federal income tax purposes on its tax return filed under former 1975 PA 228.

 

 (b) The department shall not require the entity disregarded for federal income tax purposes on the taxpayer's tax return filed under former 1975 PA 228 to file a separate tax return.

 

 (9) Notwithstanding any other provision in this act, if a taxpayer filed a tax return under former 1975 PA 228 that included in the tax return an entity disregarded for federal  income tax purposes under the internal revenue code, then the  taxpayer shall not claim a refund based on the entity disregarded  for federal income tax purposes under the internal revenue code  filing a separate return as a distinct taxpayer.

 

 Enacting section 1. This amendatory act is curative, shall  be retroactively applied, and is intended to correct any  misinterpretation concerning the treatment of an entity disregarded for federal income tax purposes under the internal revenue code under former 1975 PA 228 that may have been caused by the decision of the Michigan court of appeals in Kmart Michigan Property Services v Michigan Department of Treasury, No. 282058, May 12, 2009. However, this amendatory act is not intended to affect a refund resulting from a final order of a court of competent jurisdiction for which all rights of appeal have been exhausted prior to February 12, 2010 to a taxpayer who is a party to that proceeding.

 

The Michigan Department of Treasury issued guidance in the wake of the Supreme Court rejection of its appeal of the Court of Appeals decision in Kmart Michigan Property Services.  The Court of Appeals ruled that there is no language in the Single Business Tax Act that requires a taxpayer to file the same way as it did for federal income tax purposes.  The Department of Treasury had issued Revenue Administration Bulletin 1999-9 (RAB 99-9) which stated its position that they would follow the federal check-the-box rules.  The Court of Appeals in stating that RABs do not have the force and effect of law allowed a single member Limited Liability Company (LLC) to file a separate single business tax return.

Previously disregarded entities would have been required to file returns under the former Michigan Single Business Tax (SBT) if they had gross receipts in excess of $350,000. 

The downside to the K-Mart fix legislation, is that taxpayers entitled to a refund under the K-Mart ruling would no longer be entitled to the refund.  Initially the Department of Treasury refused to refund amended returns based on the Kmart case.  However, after the above guidance was promulgated, they started to issue refunds.

To complicate matters more, there is litigation on the issue of legislative reversal of judicial decisions.  It is anticipated that the Michigan Supreme Court and maybe the US Supreme Court may have an opportunity to review this issue.

 

 

 

 

POSTED BY: Ed Kisscorni AT 03:20 pm   |  Permalink   |  E-mail this
Posted by: Ed Kisscorni AT 02:29 pm   |  Permalink   |  Email
Saturday, March 20 2010

Today, Saturday March 20, 2010 marks the 35th anniversary of the issue date on my certificate as a Certified Public Accountant (CPA).  There has been no other single event that has shaped my adult professional life as being a CPA.  I am proud to be a CPA and I thank all those who made it happen. 

One of my first actions as a new CPA was to join the Michigan Association of Certified Public Accountants (MACPA) and specifically the State and Local Tax Committee.  I am honored to be a current member of the MACPA Board of Directors. 

I remember my first State and Local Tax Committee meeting.  The speaker was Bob Nelson, the Director of the Michigan Income Tax.  He spoke to the committee about the new Michigan unitary policy and other contentious issues.  I recall that the committee was a little rough on the guest.  The MACPA staff person assigned to the committee, a young woman new to the MACPA, felt so bad for the guest speaker, she sent flowers home to his wife.  That was the spring of 1975, I was a Treasury auditor at the time. 

That summer, after receiving my unitary training, the Department of Treasury sent me to Cincinnati, Ohio for 16 week of Revenue Agent training at the Internal Revenue Service (IRS).  Also that summer, the Michigan Legislature repealed the Michigan Income Tax and replaced it with the Single Business Tax with no unitary. 

What goes around comes around.  After 32 turbulant years, the Single Business Tax was repealed and replaced with the Michigan Business Tax and unitary.  Also, that new staff person to the State and Local Tax Committee in 1975 is now the president of the MACPA, Peggy Dzierzawski.

I was honored to serve the profession as an appointed official in Lansing for 18 years  In August of 1987 I was appointed by Governor James Blanchard to the Administrative Committee on Public Accountancy, the investigative arm of the Board of Accountancy.  I served until 1996 when I was appointed by Governor John Engler to the Board of Accountancy.  I was on the Board of Accountancy for nine years, the last four as Chair.   

Over 17,000 CPAs in Michigan probably also share my feelings about being a CPA.  I recall a discussion, while Chair of the Board of Accountancy, with Veto Danzo who was responsible for certifying CPE for CPAs.  He said that almost all CPAs in industry, not engaged in the practice of Public Accountancy, choose to keep their license and complete all the requirements including CPE even though not required.  They could easily go registered status.  However, they choose not.  I suspect they all feel it something special to be a CPA.

Over the years I have had many opportunities to speak to CPAs, either at conferences, on committees, at seminars or local practitioner groups.  I have observed first hand the great level of co-operation between CPAs, sometimes competitors.  I am proud of the way CPAs help each out and make the profession stronger.  When CPAs speak to each other, we and the profession are stronger.

Certified Public Accountant, I love the sound of those words.  That's what's on my certificate.

Posted by: Ed Kisscorni AT 11:46 am   |  Permalink   |  Email
Friday, March 19 2010

Following are some issues that have come to our attention from tax practitioners.  It looks like taxpayers, tax preparers as well as the Department of Treasury are fighting through the learning curve on the Michigan Business Tax.  Misery enjoy company.  Read on.

 

Denial of Extension Requests

 

We continue to see notices on fiscal year MBT extensions that say:  "Your request for more time to file your MBT return has been denied. Extension requests must be received by the original due date of the annual return."  The instructions say that the form and payment must be postmarked on or before the original due date of the return.

 

We follow up with a copy of the certified mail receipt as proof of timely filing which then results in an approval that states "Your request for more time to file your MBT return has been approved."

 

This is clearly some kind of computer glitch or other error with the state. This is very frustrating for practitioners as our clients ask why we missed the filing deadline. Even though taxpayers receive the approval letter, approvals do not indicate that the previous correspondence is in error.

 

Underpayment Interest and Penalty Notices

 

There appears to be two different types of notices coming out of Treasury related to MBT return adjustment issues.  One type of notice is fairly typical in the language and what to do if the taxpayer disagrees.

 

On another type of notice that makes changes to taxpayer returns, the notice states that if the taxpayers disagree, a written appeal must go the Office of Hearings Division, the Michigan Tax Tribunal or the Michigan Court of Claims.

 

Treasury says:  "There are two notices being generated currently. If a taxpayer receives the notice that states the options are Office of Hearings Division, the Michigan Tax Tribunal or the Court of Claims, that is the only option available. Treasury will not accept correspondence related to a request for waiver of any penalty.

 

These Office of Hearings Division, the Michigan Tax Tribunal or the Court of Claims notices are being generated when the change relates only to underpayment interest and penalty.  Essentially, preparers were told "don't waste our time" requesting any penalty waiver for underpayment penalties for 2008.

 

Treasury is not able to provide a calculation for how the interest and penalty is assessed, but here is how it is calculated/determined. First, they start with 75% of the tax (as changed by law - only for 2008.) If the tax is underpaid, they then assess interest only for the first 3 quarters and penalty and interest for the 4th quarter as by that point there was no more confusion over how the estimates should be calculated. The interest is not available for waiver, and the 4th quarter penalty is assessed as determined by Treasury. Treasury indicated that this is the ONLY potential adjustment available as it relates to penalties assessed for 2008 underpayment penalties.

 

Michigan Business Tax Change Notices

 

The MBT technical section has said that we can respond to Treasury without choosing one of the three choices as outlined on the notice. There is rarely any information given as to how or why changes are being made to returns.

 

It is difficult to know exactly what to document or defend with no information other than a line number on a tax return and an "as corrected by Treasury" column,. It seems ridiculous to be required to go the Tax Tribunal to resolve an issue that has not even been considered at Treasury.

 

We have been told by Treasury that over 6000 MBT notices were mailed in December alone and that the time period for processing taxpayer responses is unknown at this time. Taxpayers are ready to file in some case the 2009 returns with unresolved questions as to overpayments and other issues from prior year returns.

 

Posted by: Ed Kisscorni AT 10:55 am   |  Permalink   |  Email
Saturday, March 13 2010

REVENUE ADMINISTRATIVE BULLETIN 2010-2  Approved: February 24, 2010

MICHIGAN BUSINESS TAX - UNITARY BUSINESS GROUP RELATIONSHIP TEST

 

In RAB 2010-2, the Department cites United States Supreme Court cases that described a unitary business as a functionally integrated enterprise whose parts are mutually interdependent such that there is a flow of value between them.  There must exist some sharing or exchange of value not capable of precise identification or measurement beyond the mere flow of funds arising out of a passive investment.  In determining whether a flow of value exists, a relevant question in the inquiry is whether contributions to income resulted from "functional integration," "centralization of management," and "economies of scale."  No one fact is determinative of whether functional integration, centralization of management or economies of scale exist. Rather, the statute requires that the totality of facts and circumstances surrounding the business activities and operations be weighed and examined for cumulative effect.

 

Following is an outline of items covered in the RAB.

 

-Unitary Business Group Defined

-Two Alternative Relationship Tests

                -Flow of Value Test

                                -Functional Integration

                                -Centralized Management

                                -Economies of Scale

                -Contribution/Dependency Test

-Special Application Considerations

                -Links in a Chain

                -Instant Unity

-Factors Demonstrating a Flow of Value or Dependency

-Examples

Posted by: Ed Kisscorni AT 09:00 am   |  Permalink   |  Email
Friday, March 12 2010

House Bill 5937 (HB 5937) was introduced in the Michigan House of Representatives by Representative Brian Kandrevas and Representative Brian Cally.  The intent of the legislation is to reverse the effect of the Kmart decision of the Michigan Court of Appeals, except for Kmart.  If enacted, the Michigan Department of Treasury would be barred from assessing taxpayers who relied on Revenue Administrative Bulletin 1999-1.  The bill would also block refund claims for all taxpayers other than Kmart. 

 

Following is the amendatory language as introduced:   

 

(8) Notwithstanding any other provision in this act, for a taxpayer that filed a tax return under former 1975 PA 228 that included in the tax return an entity disregarded for federal income tax purposes under the internal revenue code, both of the following shall apply:

 

(a) The department shall not assess the taxpayer an additional tax or reduce an overpayment because the taxpayer included an entity disregarded for federal income tax purposes on its tax return filed under former 1975 PA 228.

 

 (b) The department shall not require the entity disregarded for federal income tax purposes on the taxpayer's tax return filed under former 1975 PA 228 to file a separate tax return.

 

 (9) Notwithstanding any other provision in this act, if a taxpayer filed a tax return under former 1975 PA 228 that included in the tax return an entity disregarded for federal  income tax purposes under the internal revenue code, then the  taxpayer shall not claim a refund based on the entity disregarded  for federal income tax purposes under the internal revenue code  filing a separate return as a distinct taxpayer.

 

 Enacting section 1. This amendatory act is curative, shall  be retroactively applied, and is intended to correct any  misinterpretation concerning the treatment of an entity disregarded for federal income tax purposes under the internal revenue code under former 1975 PA 228 that may have been caused by the decision of the Michigan court of appeals in Kmart Michigan Property Services v Michigan Department of Treasury, No. 282058, May 12, 2009. However, this amendatory act is not intended to affect a refund resulting from a final order of a court of competent jurisdiction for which all rights of appeal have been exhausted prior to February 12, 2010 to a taxpayer who is a party to that proceeding.

 

The Michigan Department of Treasury issued guidance in the wake of the Supreme Court rejection of its appeal of the Court of Appeals decision in Kmart Michigan Property Services.  The Court of Appeals ruled that there is no language in the Single Business Tax Act that requires a taxpayer to file the same way as it did for federal income tax purposes.  The Department of Treasury had issued Revenue Administration Bulletin 1999-9 (RAB 99-9) which stated its position that they would follow the federal check-the-box rules.  The Court of Appeals in stating that RABs do not have the force and effect of law allowed a single member Limited Liability Company (LLC) to file a separate single business tax return.

Previously disregarded entities may be required to file returns under the former Michigan Single Business Tax (SBT) if they had gross receipts in excess of $350,000.  As a result of the decision in the Kmart Michigan Property Services case, a single-member limited liability company that was disregarded for federal income tax purposes was nevertheless allowed to file a separate return from its owner. The Kmart decision applies to all open tax years, according to the Michigan Department of Treasury.  Therefore, SBT returns may need to be filed back to 1997, the effective date of RAB 99-9.

Accordingly, persons that are disregarded entities for federal income tax purposes that filed as a division of the owner for SBT purposes must file a separate SBT return for all open tax periods.  Previously disregarded entities are considered non-filers for statute of limitations purposes.  Similarly, persons that filed earlier SBT returns that included one or more previously disregarded entities must file amended SBT returns for all open periods. These returns are due September 30, 2010.

The Kmart decision may also have an effect on the nexus and apportionment provisions of the SBT.  The decision could result in refund applications for overpayments.  Entities that filed a return with a disregarded entity must file an amended return within fours years from the later of the due date of the return or the filed date of the return if granted an extension.

Interest will be due on deficiencies. However, the failure to file penalty will be waived until September 30. A previously disregarded entity is required to register with the Department of Treasury if it has no federal employer identification number (FEIN) or Michigan Treasury assigned number (TR). The filing threshold is $350,000, although there are special provisions for group members under common control.

Taxpayers are reminded to include an organization type; generally, the one under which the parent filed the return should be chosen. Attach a pro forma federal income tax return and mail returns to PO Box 30059, Lansing, MI 48909.

If HB 5937 becomes law, the above guidance from the Department of Treasury can be ignored.

Initially the Department of Treasury refused to refund amended returns based on the Kmart case.  However, after the above guidance was promulgated, they started to issue refunds.

To complicate matters more, there is litigation on the issue of legislative reversal of judicial decisions.  It is anticipated that the Michigan Supreme Court and maybe the US Supreme Court may have an opportunity to review this issue.

Stay tuned, there may be more to report on this issue.

 

 

 

 

Posted by: Ed Kisscorni AT 03:20 pm   |  Permalink   |  Email
Wednesday, March 10 2010

REVENUE ADMINISTRATIVE BULLETIN 2010-1  Approved: February 5, 2010

MICHIGAN BUSINESS TAX - UNITARY BUSINESS GROUP CONTROL TEST

 

The Department of Treasury has finally issued the long awaited RAB on the Control Test for a MBT Unitary Business Group.  After several drafts and significant input from the MACPA and other groups, the Department has settled on their rules to administer the statutorily defined "Control Test".  The Department will use IRS Section 318, although not specifically mentioned, to define indirect ownership.  They have made some exceptions to a strict following of Section 318.  There is parental attribution in family member attribution applied on lineal basis.  There is attribution between brother-sister entities.  The RAB covers the effects of voting agreements on the "ownership or control" statutory requirement.  The Department specifies the "more than 50% of the ownership interest" is based on voting rights or comparable rights and links it to the ability to elect management of the entity.

 

Following is an outline of items covered in the RAB.

 

-Unitary Business Group defined

-Control Test defined

-Controlled Groups of Entities

                -Parent-Subsidiary Controlled Group of Entities

                -Brother-Sister Controlled Group of Entities     

-Combined Controlled Group of Entities

-Excluded Ownership Interest

-Controlled Group of Entities Without Common Control

-Voting Agreements

-Nonstock Nonprofit organizations

-Entities in more than one Controlled Group of Entities

-Indirect Ownership

                -Family Member Attribution

                -Attribution from Partnerships, Corporations, and trusts and Estates

                - Attribution to Partnerships, Corporations, and Trusts and Estates

                -Options

                -Operating Principle

                                -Re-Attribution

                                -Limitations on Re-Attribution

                                -Precedence of Option Principle

                                -Member of One Controlled group

                                -S Corporations Treated as Partnerships

Posted by: Ed@EdKisscorni.com AT 01:10 pm   |  Permalink   |  Email

 

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