- The Department of Treasury cannot assess the taxpayer an additional tax or reduce an overpayment because the taxpayer included the disregarded entity on its SBT return.
- The Department cannot require the disregarded entity to file a separate tax return. In addition, if a taxpayer filed an SBT return that included an entity disregarded for Federal income tax purposes, the taxpayer cannot claim a refund based on the disregarded entity's filing a separate return as a distinct taxpayer.
The legislation is curative, and retroactive. It 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, the legislation 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. SO WHAT?
Based on this legislative fix, companies who filed Michigan single business tax returns that included disregarded entities are no longer required to retroactively file separate tax returns for the disregarded entity. This eliminates the compliance burden and additional tax that would have been paid. However, it also eliminates the opportunity to file amended returns for the parent company, which may have resulted in refunds.