Tax Alert

Update for Michigan Single Tax Filers That Own Disregarded Entities

(April 13, 2010)

Michigan Governor Jennifer M. Granholm signed House Bill 5937, the "Kmart Fix," on March 31, 2010, to retroactively limit the impact of the Kmart decision (Kmart Michigan Property Services v. Michigan Department of Treasury, Mich. Ct. App., No. 282058, appeal denied Sept. 28, 2009) and the Michigan Department of Treasury's related notice.

The Kmart decision held that a disregarded entity owned by Kmart had a separate filing responsibility for single business tax (SBT) purposes even though it was disregarded for federal tax purposes. The decision resulted in Michigan issuing a notice requiring taxpayers to file returns for all years the disregarded entity was subject to SBT, but only allowed the parent to amend returns for years open under statute (thereby taxing some income twice).

The bill restricts the application of the decision solely to Kmart and allows all other taxpayers with disregarded entities to follow federal entity classification for SBT purposes. Disregarded entities will not be required to file separate SBT returns, and the owners of the disregarded entities will not be required or permitted to file amended returns to eliminate the activity of the disregarded entity on their returns. Taxpayers that would have been entitled to refunds prior to the recent legislation should consider filing protective refund claims as the retroactive applicability of the legislation may be challenged.

For more information on how this might affect you, please contact Howard Wagner at 502.420.4567 or, Dallas Packer at 216.623.7541 or, or any Crowe Horwath LLP tax professional.

Under U.S. Treasury rules issued in 2005, we must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer. 

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Howard M. Wagner
Partner, National Tax Services