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Voluntary Disclosure by Taxpayer

 Overview

The Voluntary Disclosure Act (Public Act 221 of 1998) authorizes the State Treasurer, or a representative, to enter into a voluntary disclosure agreement with nonfilers who have not been previously contacted by the Department and who meet certain other criteria.  (Reference MCL 205.30c).

Under a voluntary disclosure agreement, eligible persons may file returns and pay taxes and interest for a limited lookback period of four years without imposition of penalties, in exchange for future tax compliance.

 Qualification Requirements

To qualify for voluntary disclosure a person must meet the following criteria:

  1. not have previously filed a tax return for the particular tax being disclosed for periods beginning after December 31, 1988.

  2. have a filing responsibility under the nexus standards issued by the Department of Treasury after December 31, 1997 -or- have a reasonable basis to contest a liability as determined by the Commissioner for a tax or fee administered under the Revenue Act.

All taxes and fees administered by the Revenue Act are eligible for inclusion in a voluntary disclosure agreement. Michigan resident taxpayers do not qualify for voluntary disclosure. (Letter Ruling 2002-03)

Revenue Administrative Bulletins (RABs) 2008-4, 2007-6 and 1999-1 describe the jurisdictional standards for Michigan Business Tax, Actively Solicits, and the jurisdictional standards for Use Tax, respectively.

A person qualifying under the above criteria may be eligible for a voluntary disclosure agreement if all of the following requirements are met:

  1. Has had no previous contact by the Department or its agents regarding a tax covered by the agreement. Previous contact means any notification of an impending audit pursuant to section 205.21(1), review, notice of intent to assess, assessment or subpoena from the Department. A letter of inquiry is not considered a previous contact. However, a person will not qualify for voluntary disclosure after receiving a final letter of inquiry.

  2. Is not currently under audit by the Department of Treasury or under investigation by the Department of State Police, Department of Attorney General, or any local law enforcement agency regarding a tax covered by the agreement.

  3. Is not currently the subject of a civil action or a criminal prosecution involving any taxes covered by the agreement.

  4. Has agreed to register, file returns, and pay all taxes due for all taxes administered under the Revenue Act for periods after the lookback period.

  5. Has agreed to file returns and worksheets specified in the agreement and pay all the taxes and statutory interest for the entire lookback period within the time period and manner specified in the agreement.
 Potential Agreement Terms

If a person satisfies all the requirements, the Department shall enter into a voluntary disclosure agreement with that person. The agreement will specify the lookback period, and will become effective only when signed by the person subject to the agreement, or its lawful representative, and returned to the Department within the time period specified in the agreement. The Department will not assess tax, penalty or interest for any period before the lookback period identified for that tax as specified in the agreement. Nor will the Department apply penalties for the lookback period. For Michigan Business tax, the lookback period is determined by the date of the initial request to enter into an agreement. The lookback period for Use tax is determined by the registration date designated in the agreement. Lookback period means one or more of the following:

  1. The four most recent completed fiscal or calendar years over a 48-month period or the first date the person began doing business in the state of Michigan if less than 48 months.

  2. For Michigan Business tax, the lookback period may be further limited to the three most recent completed fiscal or calendar years over a 36-month period or the first date the person began doing business in the state of Michigan, if less than 36 months, provided:

    1. Tax returns were filed in another state and the tax is based on net income.

    2. Michigan sales were included in the numerator of the apportionment formula in another state, and the Michigan sales increased the net tax liability in that state.

Example: A request to enter into a voluntary disclosure agreement for the Michigan Business tax was initiated on October 12, 2009. The person qualifies under the four most recent completed calendar year scenario. The Department signs the agreement on April 20, 2010. The lookback period, based on the initial request date, includes January 1, 2008 through December 31, 2008. In addition, the person is responsible for making estimated payments for 2009 and the first quarter of 2010.

  1. If there is doubt as to liability for a particular tax during the lookback period, the Treasurer has authority to determine another period that best represents the interest of the State of Michigan and will preserve equitable and fair administration of the taxes.

The Department shall keep the agreement confidential and shall not disclose any terms or conditions of the agreement to any tax authorities of any state or governmental authority or to any person except as required by exchange of information agreements.

 Filing Requirements
  1. If the company has nexus for Michigan Business tax under RAB 2008-4 and meets the filing threshold, it has a filing responsibility.

  2. A seller is subject to use tax collection responsibility under the Use Tax Act if it has nexus with Michigan.
 How to Enter into an Agreement

Please review all qualification requirements for voluntary disclosure carefully before submitting a request to participate in this program. If all requirements are satisfied, submit completed copies of Form 1353, Michigan Department of Treasury Nexus Questionnaire and Form 4133, Voluntary Disclosure Request. Please provide detailed information in both Form 1353 and Form 4133 of the person's activities in Michigan. This information will be used to assist us in determining the appropriate tax(es) you or your client may be liable to the state of Michigan. If you are not able to obtain copies of Form 1353 and Form 4133 from this web site, please call the Discovery and Tax Enforcement Division at the telephone number below to have a copy mailed or faxed to you.

In an effort to maintain the confidentiality of your client, it is not necessary to include the name, address, telephone number, social security number, or federal identification number of the person or company requesting to enter into an agreement. Please mail your request to the Discovery and Tax Enforcement Division using the address below.

Discovery and Tax Enforcement Division
P.O. Box 30140
Lansing, MI 48909

 Stages of the Process

Once a request is submitted to the Discovery and Tax Enforcement Division, the applicant or representative of the applicant is expected to proceed through the voluntary disclosure process in a timely manner. Dates to respond throughout the various stages of the process are identified in either a cover letter or agreement. Delays in responding, without prior notification to the division, will result in termination of the request.

  1. Upon receipt of the Voluntary Disclosure Request (Form 4133) and Nexus Questionnaire (Form 1353), an auditor will be assigned to process the request and a unique number will be issued to the file. An acknowledgement letter will be sent indicating the file number assigned to the request.

  2. The auditor will review the file to determine the applicant's exposure to Michigan taxes and follow up with the applicant or representative to discuss the request.

  3. The Discovery and Tax Enforcement Division will prepare and forward an agreement for each tax disclosed to the applicant or representative for review and for the applicant's signature. A Michigan Business Taxes Registration Booklet (Form 518) will be included. The signed agreement(s) and Form 518 must be returned within 30 days.

    The basic agreements for MBT and Use Tax can be viewed by clicking on the following titles: 3-Year MBT Agreement, 4-Year MBT Agreement, Use Tax Agreement. Please note, copies of the agreements obtainable on this web site are for informational purposes only and cannot be used in place of an agreement issued by the Department.

  4. Completed tax return(s)/spreadsheet(s) with full payment of tax and interest are due 30 days after the agreement is countersigned by the department. If 30 days is not sufficient to complete the return(s)/spreadsheet(s), please inform the auditor of a more suitable time frame in the request letter or follow up discussion. Failure to submit the appropriate return(s)/spreadsheet(s) within the time frame specified in the agreement will cause termination of the agreement. View the current interest rate (Estimate Your Penalty and Interest).

If an applicant's most recent completed calendar or fiscal year is on federal extension, the applicant must submit a copy of the federal extension with the prepared MBT returns. The return for the tax period covered by the federal extension is due by the date established with the extension request. The auditor should be notified of this situation prior to writing the agreement(s) in order to include a provision in the agreement to extend the due date of the return.

Taxpayer-Initiated Disclosure

Overview

A person that does not qualify under the voluntary disclosure legislation may be eligible for a penalty waiver as outlined in RAB 2005-03, Penalty Provisions. This program allows a person to voluntarily disclose a tax deficiency without imposition of penalties by the Department. Limitations to the lookback period are not allowed under this program.

Qualification Requirements

Except as applied to estimated tax returns, taxpayer-initiated disclosure means any voluntary disclosure of a tax deficiency when there has been no prior contact by the department.

No penalty will be applied to tax deficiencies on amended returns, providing:

  1. There has been no contact by the department
  2. The taxpayer is not under investigation by the department for the tax period involved, and
  3. The taxpayer or agent pays the tax deficiency and interest without further action by the department.

No penalty will be applied to tax deficiencies paid with the filing of a delinquent return providing:

  1. There has been no contact by the department,
  2. The taxpayer is not under investigation by the department,
  3. The tax period of the return(s) includes the taxpayer's first filing period for that tax, and
  4. The taxpayer or agent pays the tax deficiency and interest without further action by the department.

A Taxpayer is required to file a written request or statement to be considered for the taxpayer-initiated disclosure exception from penalty.

How to Make a Taxpayer-Initiated Disclosure

Complete and submit all of the following:

  1. A letter attesting to the four conditions identified above.

  2. The appropriate tax returns or worksheets.
    1. If the disclosure is for Michigan Business Tax or individual income tax, completed tax returns must be submitted for all years.

    2. If the disclosure is for sales, use or withholding tax, a worksheet must be submitted. Example: If you are reporting sales tax, the worksheet must include the taxable sales, the tax amount and the interest amount. Go to Revenue Administrative Bulletins (RAB's) to locate the most current RAB for Interest Rates. View the current interest rate
      1. If the tax being remitted was not previously collected, complete the worksheet on a quarterly basis. Compute interest from the 20th day of the month following the quarter, to the present date.

      2. If sales or use tax was collected from the purchaser, or withholding taxes withheld from employee wages, the amounts must be reported on a monthly basis. Compute interest from the 20th day of the following month to the present date.

Remit the full amount of tax and interest due along with a check payable to the State of Michigan. Forward the letter, returns/worksheets and payment to the Discovery and Tax Enforcement Division, at the address identified below. (Interest is calculated by multiplying the current interest rate. View the current interest rate)

Upon receipt, the Discovery and Tax Enforcement Division will send a notice verifying receipt of the returns/worksheets.

More Information

The Corporate Income Tax (CIT) is effective as of January 1, 2012. The CIT replaces the Michigan Business Tax (MBT); however, MBT taxpayers who have received or been assigned certain certificated credits may elect to continue to file under the MBT rather than the CIT in order to claim such credits.

Flow-through entities (excluding trusts) reasonably expected to accrue more than $200,000 of business income may be required to withhold Michigan income tax at the corporate income tax rate on the distributive share of the business income of any member that is a corporation or another flow-through entity. For more information on withholding requirements, please see the "Withholding" section of this website. http://www.michigan.gov/taxes/0,4676,7-238-43531---,00.html

To view additional details on the Corporate Income Tax, click on the link below.
http://www.michigan.gov/taxes/0,4676,7-238-59553---,00.html

If you would like additional information regarding the voluntary disclosure program or the taxpayer-initiated disclosure program, contact the Discovery and Tax Enforcement Division at P.O. Box 30140, Lansing, MI 48909, or call (517) 636-4120.



Related Documents
1353, Michigan Department of Treasury Nexus Questionnaire - 315731 bytes PDF icon
3-Year MBT Agreement - 34768 bytes PDF icon
4-Year MBT Agreement - 33254 bytes PDF icon
4133, Voluntary Disclosure Request - 119669 bytes PDF icon
4696, Summary of Revenue Administrative Bulletins (RABs) 2007-6 and 2008-4 - 44300 bytes PDF icon
Form 4503, Summary of Revenue Administrative Bulletins (RAB) 1999-1 - 221834 bytes PDF icon
RAB 2007-6 Michigan Business Tax - "Actively Solicits" Defined - 33947 bytes PDF icon
RAB 2008-4, Michigan Business Tax Nexus Standards - 78088 bytes PDF icon
Revenue Administrative Bulletin 1998-1 - 148776 bytes PDF icon
Revenue Administrative Bulletin 1999-1 - 40266 bytes PDF icon
UC 518, Michigan Business Tax Registration Application PDF icon
Use Tax Agreement - 87849 bytes PDF icon
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