206.723. Partnership level audits; administrative adjustment requests; reporting requirements; state partnership representative; irrevocable election to pay tax; reporting to partners; alternative reporting and payment methods; credit or refund of overpayment; rules.
Sec. 723.
(1) Except for adjustments required to be reported for federal purposes by taking those adjustments into account in the partnership return for the year of adjustment, 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 final federal adjustment 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 must 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 must 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 may 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 shall 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 adjustments required to be reported for federal purposes by taking those adjustments into account in the partnership return for the year of adjustment, a taxpayer may file a claim for a refund or credit of the overpayment of the tax arising from final federal adjustments 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.
Add. 2022, Act 148, Imd. Eff. July 19, 2022
[Compiler] Enacting section 1 of Act 148 of 2022 provides:
[Compiler] "Enacting section 1. This amendatory act is retroactive and applies to all tax years that begin on and after January 1, 2018."
