Single Member Entities. Under federal regulations known as check-the-box regulations, an eligible domestic entity may elect to be classified for federal tax purposes as an association taxable as a corporation or as a partnership. Treas Reg 301.7701-1 - 301.7701-3. If the entity declines to make an election, federal regulations provide for automatic default classifications. Specifically, corporations and certain other organizations that are required to be corporations for federal tax purposes are not eligible for entity election. However, unincorporated entities, such as limited liability companies having two or more members, may elect to be taxed as a corporation; otherwise, the entity will be classified by default as a partnership for federal tax purposes.

Similarly, a single member entity, such as a single member limited liability company, may elect to be taxed as a corporation or ? by default ? disregarded as an entity separate from its owner for federal tax purposes. Under the federal regulations, a single member entity disregarded as a separate entity is treated as a sole proprietorship, branch, or division of its owner. Treas Reg 301.7701-1 - 301.7701-3.

In general, the MBT conforms to the federal check-the-box regulations. For example, "corporation" means a taxpayer that is required to file or has elected to file as a corporation for federal tax purposes. MCL 208.1107(3). In addition, "partnership" is defined as a taxpayer that is required to file or has elected to file as a partnership for federal tax purposes. MCL 208.1113(2). Furthermore, the business income component of the MBT is computed using federal taxable income as a starting point, which ? in turn ? relies on the tax classifications governed by the check-the-box regulations.

Thus, a single member entity, including limited liability companies, disregarded for federal tax purposes will be similarly disregarded under the MBT. In other words, an entity disregarded for federal tax purposes will be treated as a sole proprietorship, branch, or division of its owner. The owner of the disregarded entity will be the taxpayer under the MBT.

QSubs. The MBT also conforms to the federal QSub election. Under federal tax provisions, the separate existence of a QSub is ignored. An S corporation and its QSub are deemed to be one corporation and file a single federal income tax return. For MBT purposes, the QSub is disregarded as an entity and the S corporation and its QSub must file a single return (or as part of the combined return of a unitary business group).

An MBT taxpayer with a QSub must attach a copy of its federal QSub election form to its MBT return for the year the election is made or the first year the election is reflected on the MBT return if not previously attached to one of its SBT returns.