Internal Policy Directive 2013-1 Explains the Exemption and Documentation Required
The Michigan Department of Treasury in Internal Policy Directive 2013-1, Michigan Department of Treasury, April 2, 2013, discusses the personal investment income exemption under the single business tax (SBT). The law clarifying the treatment of personal investment income was previously reported.
The exemption covers individuals, estates, persons organized for estate or gift planning purposes, persons organized exclusively to conduct investment activity for individuals or persons related to that individual, and common trusts established under the Collective Investment Funds Act for amounts received, income or gain from those transactions, activities, or sources other than in the regular course of a person’s trade or business.
Taxpayers are not required to attach anything in particular to the return to prove that they are entitled to the exemption, but documentation should be kept. Original documents, minutes, and memoranda created contemporaneously with the entity’s formation that describe the entity’s gift or estate planning purpose are helpful, while documents created after formation or in response to the department’s request are less helpful. Also, federal income tax returns as well as federal gift or estate tax returns may be reviewed. Finally, the department discusses how the law will be applied to taxpayers for informal conferences, refund requests, final assessments that have not been paid, and litigation.