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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 
Friday, January 13 2012

Treatment of Disregarded Entities Clarified, Definition of "Business Income" Revised, Due Date of Final Payment Clarified and Definition of Research and Development Expenses Revised

A major piece of legislation advocated by the Michigan Association of Certified Public Accountants (MACPA) was signed into law by Governor Snyder on December 29, 2011

Public Act 305 of 2011 (S.B. 369), effective retroactively for Michigan Business Tax levied on or after January 1, 2008 clarifies the treatment of disregarded entities, revises the definition of "business income", specifies that the taxpayer's final tax liability must by the due date of the return and the definition of "research and development expenses" was revised.  These provisions were part of a sixteen item list of technical amendments advocated by the MACPA.  The MACPA plans to work on passage of the remaining items in 2012.

Disregarded Entities

PA 305 clarifies the treatment of disregarded entities under the Michigan Business Tax (MBT).   A person that is a disregarded entity for federal income tax purposes is classified as a disregarded entity for the MBT.  A person that is a disregarded entity for federal income tax that before 2012 in an originally filed return was treated as a person separate from its owner or before December 1, 2011, in an amended return was treated as a person separate from its owner for a tax year that begins after 2007 is not required to file an amended return with the owner as a disregarded entity.  

In addition, a person that is a disregarded entity for federal income tax that before 2012 in an originally filed return was treated as a person separate from its owner or before December 1, 2011, in an amended return was treated as a person separate from its owner for the first tax year that begins after 2009 may be treated as a person separate from its owner under the MBT for its tax year that begins after 2010 and ends before 2012. PA 305 overrules the Department of treasury notices requiring disregarded entities for federal tax purposes to file separate MBT returns.

Business Income

The MBT definition of "business income" is revised to exclude income derived from investment activities unless the activity is in the regular course of the person's trade or business for a person that is organized exclusively to conduct investment activities and that does not conduct investment activities for any person other than the individual or a person related to that individual and for a common trust fund established under the Collective Investments Funds Act. Also, for individuals, estates, or persons organized for estate or gift planning purposes, business income includes income derived from the lease or rental or real property.

Due Date for Final Payment

PA 355 clarifies that the MBT taxpayer's final tax liability must be remitted by the last day of the fourth month after the end of the taxpayer's tax year.  Previously, the Department of Treasury had adopted a restricted reading of the law requiring payment with the filing of the MBT return.  When the MBT return was filed before the due date, but the tax paid on or before the due date, Treasury had been assessing penalty and interest for late payment.

Research and Development Expenses

The MBT definition of "research and development expenses" for the R&D expense credit is revised by PA 355 to mean qualified research expenses as that term is defined in IRC 41(b). Previously, it was defined as that term as defined in IRC 41(b).

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  0 Comments  |  Email
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