Bill Text: MI SB1035 | 2019-2020 | 100th Legislature | Engrossed
Bill Title: Individual income tax: reporting; methods for reporting federal adjustments due to partnership level audits; provide for. Amends secs. 325, 687 & 701 of 1967 PA 281 (MCL 206.325 et seq.) & adds ch. 18.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Engrossed - Dead) 2020-12-02 - Referred To Committee On Ways And Means [SB1035 Detail]
Download: Michigan-2019-SB1035-Engrossed.html
Substitute For
SENATE BILL NO. 1035
A bill to amend 1967 PA 281, entitled
"Income tax act of 1967,"
by amending sections 325, 687, and 701 (MCL 206.325, 206.687, and 206.701), section 325 as amended by 2011 PA 38, section 687 as added by 2011 PA 38, and section 701 as amended by 2011 PA 311, and by adding chapter 18.
the people of the state of michigan enact:
Sec. 325. (1) A
taxpayer required to file a return under this part may be required to furnish a
true and correct copy of any tax return or portion of any tax return and
supporting schedules that the taxpayer has filed under the provisions of the internal
revenue code.
(2) A Except as provided in subsection (3), a taxpayer shall
file an amended return with the department showing any final alteration in, or
modification of, the taxpayer's federal income tax return that affects the
taxpayer's taxable income under this part and of any similarly related
recomputation of tax or determination of deficiency under the internal revenue
code. If an increase in taxable income results from a federal audit that
increases the taxpayer's federal income tax by less than $500.00, the
requirement under this subsection to file an amended return does not apply but
the department may assess an increase in tax resulting from the audit. The
amended return shall be filed within 120 days after the final alteration,
modification, recomputation, or determination of deficiency. If the department
finds upon all the facts that an additional tax under this part is owing, the
taxpayer shall immediately pay the additional tax. If the department finds that
the taxpayer has overpaid the tax imposed by this part, a credit or refund of
the overpayment shall immediately be made as provided in section 30 of 1941 PA
122, MCL 205.30. This subsection does not apply to the
reporting of a final federal adjustment arising from a partnership level audit
or an administrative adjustment request required to be reported under chapter
18.
(4)
As used in this section, "administrative adjustment request",
"final federal adjustment", and "partnership level audit"
mean those terms as defined in section 721.
Sec. 687. (1) A
taxpayer required to file a return under this part may be required to furnish a
true and correct copy of any return or portion of any return filed under the
provisions of the internal revenue code.
(2) A Except as provided in subsection (3), a taxpayer
shall file an amended return with the department showing any alteration in or
modification of a federal income tax return that affects its tax base under
this part. The amended return shall be filed within 120 days after the final
determination by the internal revenue service.
This subsection does not apply to the reporting of a final federal adjustment
arising from a partnership level audit or an administrative adjustment request
required to be reported under chapter 18.
(3)
For tax years that begin on and after January 1, 2018, a partnership that is
not subject to chapter 18, but has determined that the partners' share of
income, deductions, and credits previously reported to its partners and
included in a return filed under this part requires adjustment, may, at the
discretion of the department, file a report with the department and pay the tax
due or claim a refund on behalf of its partners in a manner similar to the
process set forth in chapter 18.
(4)
As used in this section, "administrative adjustment request",
"final federal adjustment", and "partnership level audit"
mean those terms as defined in section 721.
Sec. 701. As used
in this part:chapter:
(a) "Casino" means that term as defined in section
110.
(b) "Casino licensee" means a person licensed to
operate a casino under the Michigan gaming
control and revenue act, Gaming
Control and Revenue Act, 1996 IL 1, MCL 432.201 to 432.226.
(c) "Eligible production company" means that term
as defined under section 455 of the Michigan business tax act, 2007 PA 36, MCL
208.1455.
(d) "Flow-through entity" means an entity that for
the applicable tax year is treated as an S corporation under section 1362(a) of
the internal revenue code, a general partnership, a limited partnership, a
limited liability partnership, or a limited liability company, that for the
applicable tax year is not taxed as a corporation for federal income tax
purposes. Flow-through entity does not include any entity disregarded under
section 699.
(e) "Member" means a shareholder of an S
corporation, a partner in a general partnership, a limited partnership, or a
limited liability partnership, a member of a limited liability company, or a
beneficiary of a trust, that is a flow-through entity.
(f) "Nonresident" means an individual who is not a
resident of or domiciled in this state, a business entity that does not have
its commercial domicile in this state, or a trust not organized in this state.
(g) "Partnership" means a taxpayer that is required
to or has elected to file as a partnership for federal income tax purposes.
(h) "Publicly traded partnership" means that term
as defined under section 7704 of the internal revenue code.
(i) "Race meeting licensee" and "track
licensee" mean a person to whom a race meeting license or track license is
issued pursuant to section 8 of the horse racing law of 1995, 1995 PA 279, MCL
431.308.
(j) "S corporation" means a corporation electing taxation under subchapter S of chapter 1 of subtitle A of the internal revenue code, sections 1361 to 1379 of the internal revenue code.
CHAPTER 18
Sec. 721. As used in this chapter:
(a)
"Administrative adjustment request" means an administrative
adjustment request filed by a partnership under section 6227 of the internal
revenue code.
(b)
"Audited partnership" means a partnership subject to a partnership
level audit resulting in a federal adjustment.
(c)
"Corporate partner" means a partner, other than a unitary business
group, that is subject to tax under chapter 11, including a partner that has
unrelated business activity.
(d)
"Direct partner" means a partner that holds an interest directly in a
partnership or pass-through entity.
(e)
"Exempt partner" means a partner that is exempt from taxation under
this act and does not have unrelated business activity.
(f)
"Federal adjustment" means a change to an item or amount determined
under the internal revenue code that is used by a taxpayer to compute tax
liability under this act whether that change results from action by the IRS,
including a partnership level audit, or the filing of an amended federal
return, federal refund claim, or an administrative adjustment request by the
taxpayer. A federal adjustment is positive to the extent that it increases tax
due under this act and is negative to the extent that it decreases the tax due
under this act.
(g)
"Federal adjustments report" includes methods or forms required by
the department for use by a taxpayer to report final federal adjustments,
including an amended tax return or information return.
(h)
"Federal partnership representative" means the person the partnership
designates for the reviewed year as the partnership's representative, or the
person the IRS has appointed to act as the federal partnership representative,
pursuant to section 6223 of the internal revenue code.
(i)
"Final determination date" means the following:
(i) Except as provided in subparagraphs
(ii)
and (iii), if the federal adjustment arises from a
partnership level audit, the final determination date is the first day on which
no federal adjustments arising from that audit remain to be finally determined,
whether by IRS decision with respect to which all rights of appeal have been
waived or exhausted, by agreement, or, if appealed or contested, by a final
decision with respect to which all rights of appeal have been waived or
exhausted. For agreements required to be signed by the IRS and the taxpayer,
the final determination date is the date on which the last party signed the
agreement.
(ii) For federal adjustments arising from
a partnership level audit, if the taxpayer filed as a person included in a
unitary business group, the final determination date means the first day on
which no related federal adjustments arising from that audit remain to be finally
determined, as described in subparagraph (i), for the entire unitary business group.
(iii) If the federal adjustment results
from filing an administrative adjustment request, the final determination date
means the day on which the administrative adjustment request was filed.
(j)
"Final federal adjustment" means a federal adjustment after the final
determination date for that federal adjustment has passed.
(k)
"Indirect partner" means a partner in a partnership or pass-through
entity that itself holds an interest directly, or through another indirect
partner, in a partnership or other pass-through entity.
(l) "IRS" means the Internal
Revenue Service of the United States Department of the Treasury.
(m)
"Nonresident partner" means an individual, estate, or trust partner
that is not a resident partner.
(n)
"Partner" means a person that holds an interest directly or
indirectly in a partnership or pass-through entity.
(o)
"Partnership" means an entity subject to taxation under subchapter K
of the internal revenue code.
(p)
"Partnership level audit" means an examination by the IRS at the
partnership level pursuant to sections 6221 to 6241 of the internal revenue
code, which results in federal adjustments.
(q)
"Pass-through entity" means an S corporation, partnership, limited
partnership, limited liability partnership, or limited liability company.
(r)
"Resident" means that term as defined in section 18.
(s)
"Resident partner" means an individual, estate, or trust that is a
resident for the relevant tax year.
(t)
"Reviewed year" means the tax year of a partnership that is subject
to a partnership level audit from which a federal adjustment arises.
(u)
"Taxpayer" means all of the following:
(i) Any person subject to the taxes
imposed by part 1.
(ii) A corporation or unitary business
group that is liable for a tax, interest, or penalty under part 2. As used in
this subparagraph, "corporation" means that term as defined in part
2.
(iii) A partnership subject to a
partnership level audit or a partnership that has made an administrative
adjustment request, as well as a tiered partner of that partnership.
(v)
"Tiered partner" means any partner that is a partnership or other pass-through
entity.
(w)
"Unitary business group" means that term as defined in section 611.
(x)
"Unrelated business activity" means that term as defined in section
611.
Sec. 723. (1) Except for adjustments
required to be reported for federal purposes under section 6225(a)(2) of the
internal revenue code, partnerships and partners shall report final federal
adjustments arising from a partnership level audit or an administrative
adjustment request and make payments as required under this section.
(2)
With respect to an action required or permitted to be taken by a partnership
under this section and any other proceeding or action permitted under this chapter
or 1941 PA 122, MCL 205.1 to 205.31, the state partnership representative for
the reviewed year has the sole authority to act on behalf of the partnership.
The partnership's direct partners and indirect partners are bound by those
actions. The state partnership representative for the reviewed year is the
partnership's federal partnership representative unless the partnership
designates in writing another person as its state partnership representative.
The department may establish reasonable qualifications and procedures for
designating a person, other than the federal partnership representative, to be
the state partnership representative.
(3)
Except for final federal adjustments subject to a properly made election under
subsection (4), final federal adjustments must be reported as follows:
(a)
No later than 90 days after the final determination date, the partnership shall
do all of the following:
(i) File a completed federal adjustments
report, including information as required by the department.
(ii) Report to each of its direct
partners for the reviewed year their distributive share of the final federal
adjustments including information as required by the department.
(iii) Submit a payment on behalf of any
nonresident partner previously included on a composite return for the reviewed
year for the additional amount of tax that would have been due had the final
federal adjustments been reported properly as required.
(b)
If the partner's increase in the amount of tax due that results from the partnership
level audit is $25.00 or more, no later than 180 days after the final
determination date, each direct partner for that reviewed year that is a
corporate partner, resident partner, or nonresident partner whose payment is
not included in the composite return payment under subdivision (a)(iii) shall file a federal adjustments
report reporting that partner's share of the adjustments reported under subdivision
(a)(ii)
and pay any additional amount of tax due as if final federal adjustments had
been properly reported, plus any penalty and interest as provided under 1941 PA
122, MCL 205.1 to 205.31. If the department determines that the taxpayer has
overpaid the tax imposed by this act, a credit or refund of the overpayment
shall be issued immediately as provided in section 30 of 1941 PA 122, MCL
205.30.
(4)
An audited partnership that makes an election under this subsection is subject
to the laws related to reporting, assessment, payment, and collection of the
tax calculated under this act and under 1941 PA 122, MCL 205.1 to 205.31, and shall
do all of the following:
(a)
No later than 90 days after the final determination date, file a completed
federal adjustments report, including information as required by the
department, and notify the department that it is making the election under this
subsection.
(b)
Subject to the limitation in subsection (5), no later than 180 days after the
final determination date, exclude from final federal adjustments the
distributive share of those adjustments attributed to direct exempt partners
not subject to the tax under this act and pay an amount equal to the sum of the
following along with any penalty and interest as provided in 1941 PA 122, MCL
205.1 to 205.31, in lieu of taxes owed by its direct partners and indirect partners:
(i) For the distributive shares of the remaining final
federal adjustments that are attributed to direct corporate partners, determine
the amount allocated or apportioned to this state under part 2 and multiply
that share amount by the tax rate imposed under section 623 for the reviewed
year.
(ii) For the distributive shares of the remaining final
federal adjustments that are attributed to direct tiered partners determine, as
prescribed by the department, as follows:
(A)
The distributive shares that are attributed to indirect corporate partners and
that are allocated or apportioned to this state under part 2 and multiply that
amount by the tax rate imposed under section 623 for the reviewed year.
(B)
The distributive shares that are attributed to indirect resident or nonresident
partners and that are allocated or apportioned to this state under part 1 and
multiply that amount by the tax rate imposed under section 51 for the reviewed
year.
(C)
For the remaining distributive shares of the final federal adjustments that are
not attributed under sub-subparagraph (A) or (B), determine the amount
allocated or apportioned to this state under part 2 and multiply that amount by
the tax rate imposed under section 623 for the reviewed year.
(iii) For the distributive shares of the remaining final
federal adjustments that are attributed to direct partners subject to the tax
under part 1, determine the amount allocated and apportioned to this state
under part 1 and multiply that amount by the tax rate imposed under section 51
for the reviewed year.
(5)
In determining the amount of the tax under subsection (4)(b), if reasonably
identified by the audited partnership, final federal adjustments shall not
include the distributive share of final federal adjustments attributed to any
direct or indirect corporate partner that is unitary with the audited
partnership for apportionment purposes as provided under section 663.
(6)
The direct and indirect partners of an audited partnership that are tiered
partners, and all of the partners of those tiered partners that are subject to
tax under this act are subject to the reporting and payment requirements of
subsection (3) and the tiered partners are entitled to make the elections
provided in subsections (4) and (7). The tiered partners or their partners
shall make required reports and payments no later than 90 days after the time
for filing and furnishing statements to tiered partners and their partners as
established under section 6226 of the internal revenue code.
(7)
In accordance with procedures adopted by the department, an audited partnership
or tiered partner shall submit an application to the department, in a form and
manner as prescribed by the department, for an alternative reporting and
payment method within the time allowed for an election under subsection (3) or
(4), as applicable. If the application is approved by the department, an
audited partnership or tiered partner may enter into an agreement with the
department to utilize an alternative reporting and payment method, including
applicable time requirements or any other provision of this section, if the
audited partnership or tiered partner demonstrates that the requested method
will reasonably provide for the reporting and payments of taxes, penalties, and
interest due under this section.
(8)
An election made under subsection (4) or (7) is irrevocable, unless the
department, in its discretion, determines otherwise. If properly reported and
paid by the audited partnership or tiered partner, the amount determined under
subsection (4)(b) or alternatively under subsection (7) is considered paid in
lieu of taxes owed by its direct and indirect partners, to the extent applicable,
on the same final federal adjustments. The direct partners or indirect partners
may not take any deduction or credit under this act for this amount or claim a
refund of the amount. This subsection does not preclude a direct resident
partner from claiming a credit under section 255 against taxes paid to this
state under this act, for any amounts paid by the audited partnership or tiered
partner on the resident partner's behalf to another state or local tax
jurisdiction. If a partnership or tiered partner fails to timely make any
report or payment as required under this section, the department may assess
direct partners or indirect partners for taxes owed as determined based on the
best information available.
(9)
If a taxpayer files a federal adjustments report or an amended return as
required and within the time period specified in this section, the department
may not assess additional tax, interest, and penalties arising from final
federal adjustments after the expiration of the limitations period specified in
section 27a of 1941 PA 122, MCL 205.27a. If a taxpayer fails to file the
federal adjustments report within the time period specified in this section or
the taxpayer files a federal adjustments report that omits adjustments or
understates the correct amount of tax owed, the department may assess
additional tax, interest, and penalties arising from those federal adjustments
if the department issues a notice of assessment to the taxpayer within 6 years
after the final determination date.
(10)
A taxpayer that expects to owe additional tax as a result of a pending partnership
level audit may make payments, as prescribed by the department, prior to the
due date of the federal adjustments report. The department shall credit any
payments against any tax liability ultimately found to be due under the federal
adjustments report and any payments made limit the accrual of further statutory
interest on that amount.
(11)
Except for final federal adjustments required to be reported for federal
purposes under section 6225(a)(2) of the internal revenue code, a taxpayer may
file a claim for a refund or credit of the overpayment of the tax arising from
federal adjustments made by the IRS before the expiration of the statute of
limitations established under section 27a of 1941 PA 122, MCL 205.27a. For a
taxpayer that is a partnership, any claim for a refund or credit under this
section must be made within 2 years of the final determination date of the
federal adjustment.
(12)
The time periods provided for in this section may be extended as provided under
either of the following:
(a)
Automatically, upon written notice to the department, by 60 days for an audited
partnership or tiered partner that has 10,000 or more direct partners.
(b)
By written agreement between the taxpayer and the department.
(13)
The department may promulgate rules to implement this section and establish
procedures and interim time periods for the reports and payments required by
tiered partners and their partners and for making the elections under this
section. To the extent practicable, the department shall establish rules and
regulations that conform as closely as possible to the federal rules and
procedures.
Sec. 725. This chapter is effective and applies to all tax years that begin on and after January 1, 2018.
Enacting section 1. This amendatory act is intended to be retroactive and apply to all tax years that begin on and after January 1, 2018.