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| B31. If a C corporation owns 56% of a flow-through entity, and the two meet the MBT definition of a unitary group, how does the corporation report all of the income of the flow-through entity when all it receives from the entity is a K-1? Also, do |
Assuming the C corporation and the flow-through entity constitute a unitary
group as defined under MCL 208.1117(6), they are required to file one combined
return pursuant to MCL 208.1511. The business income tax base of the unitary
group is determined by adding the business income tax bases of the C corporation
and the flow through entity as computed under MCL 208.1201 and then eliminating
any inter-group transactions. The modified gross receipts ("MGR") tax base is
determined in a similar manner by computing the MGR tax base of each member
under MCL 208.1203 and then eliminating inter-group transactions. If either or
both members of the unitary group have nexus in states other than Michigan, the
apportionment percentage is determined on a combined basis and then applied to
the total business income tax and MGR tax bases of the unitary group. How or in
what manner the members of a unitary group share information necessary to
prepare a combined return is not determined by the Department.
Owners of the flow-through entity that are not included in the unitary group
must adjust their respective MBT income tax bases to remove their share of
income or losses from the flow through entity pursuant to MCL 208.1202(2)(e).
However, the non-unitary owners that are not individuals, estates, or trusts or
partnerships organized exclusively for estate or gift planning purposes must
include their distributive share of income from the flow-through entity in their
respective MGR tax bases. Owners of flow through entities that are individuals,
estates, or trusts or partnerships organized exclusively for estate or gift
planning purposes are not generally subject to MBT on their distributive or
pro-rata share of flow-through income.
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