Michigan: Disregarded Entities ON ALERT!
Is it just me, or does Michigan like to be the center of attention? Okay, just a little humor.
ATTENTION: DISREGARDED ENTITIES!
If you are operating in Michigan or have any connection with Michigan today or especially in the past, you are going to want to read Michigan's latest NOTICE to taxpayers regarding KMART Michigan Property Services, LLC.
According to the Notice and as a result of the Court of Appeals case,
KMPS was required to file a SBT return, regardless of its classification as a disregarded entity for federal tax purposes, because KMPS fit within the statutory definition of a “person” conducting business activity and the SBTA required all persons conducting business activity in the state to file a SBT return. Therefore, the SBTA does not support the requirement of RAB 1999-9 that an organization that is a disregarded entity for federal tax purposes for a given taxable period must also file as a disregarded entity for state tax purposes.
The main point in all of this is that Michigan will apply the result of the Kmart court case to all open tax years.
RETURNS REQUIRED FOR ALL TAX YEARS EXCEEDING FILING THRESHOLD
Pursuant to Kmart, persons that are disregarded entities for federal tax purposes that filed as a branch, division, or sole proprietor of their owner for SBT purposes ("previously disregarded entities") must now file a separate SBT return for all open tax periods.
Previously disregarded entities are considered non-filers for statute of limitations purposes under MCL 205.27a. Consequently, returns must be filed for all tax years for which the previously disregarded entity exceeds the filing threshold.
NOTE: Disregarded entities may be eligible to file a Voluntary Disclosure Agreement to limit the lookback period; however, at this time, it is unclear.
AMENDED RETURNS FOR TAXPAYERS THAT INCLUDED DISREGARDED ENTITIES
Persons that previously filed SBT returns that included one or more previously disregarded entities must amend their returns for all open periods. These persons may not amend returns beyond the statute of limitations set forth under MCL 205.27a.
ALL ACTION MUST TAKE PLACE BY SEPTEMBER 30, 2010
All persons required to file or amend a return under Kmart and this Notice must do so by September 30, 2010.
INTEREST AND PENALTIES
Interest under MCL 205.23 and MCL 205.24 is due for any deficiencies in tax payments and shall be added to the tax from the time the tax was originally due. Interest on refunds due to amended returns or returns filed by previously disregarded entities shall be calculated and added to the refund commencing 45 days after the claim is filed.
Failure to file penalties under MCL 205.24 will be waived for all returns filed and paid by September 30, 2010. Penalty will be assessed against any previously disregarded entity that fails to file a required return by September 30, 2010.
REGISTRATION, FILING, CONTROLLED GROUPS
Additional guidance on registration, filing and controlled groups is provided in the NOTICE.
The Michigan legislature may take action before September to clarify or rectify this situation. Also, additional information from the Michigan Department of Treasury may be released to provide more guidance. Therefore, disregarded entities may want to hold-off on complying with this notice until things become clearer.
If you have any questions or need assistance, please contact me at [email protected].