According to the Michigan Treasury notice dated November 29, 2010, the department concluded that disregarded entities fit within the statutory definition of a “person” (MCL 208.1117). So what does this mean for single-member LLCs or qualified subchapter S subsidiaries that engage in business activity in Michigan and have gross receipts of 350,000 or more? The notice announces that a person that is a disregarded entity for federal tax purposes must file a separate return under the MBT or file as a member of a unitary business group. This notice reverses previous guidance that federally disregarded entities would file in the same manner for MBT purposes.

All persons that previously filed a MBT return as a sole proprietor is considered a non-filer for statute of limitation purposes and is required to file an amended return by June 30, 2011. The amended return is required whether it results in a difference in tax liability or not.

Previously disregarded entities are required to have a Federal Employer Identification Number (FEIN) or a Michigan Treasury assigned number (TR) before filing the Michigan Business Tax return. The disregarded entity must prepare a corresponding pro forma federal return to attach to the MBT return.

There is much speculation as to whether the Treasury will provide additional guidance, since it is expected that this change will result in an increase in compliance burden on Michigan Taxpayers.

Contact Heintzelman Accounting for assistance in determining whether you may need to file any amended Michigan Business Tax returns.