|Michigan Business Tax|
|C38. Do dividends that represent distribution of previously taxed S corporation earnings qualify as dividends for purposes of determining an "active shareholder"?|
Yes, the MBT definitions of "active shareholder" and "shareholder" are
essentially similar to the definitions under the SBTA. An "active shareholder"
is a shareholder who receives, in any combination, at least $10,000 in
compensation, director's fees, or dividends from the business, and who owns at
least 5% of the outstanding stock or other ownership interest. MCL
208.1417(9)(a). A "shareholder" is a person who owns outstanding stock in a
business or is a member of a business entity that files as a corporation for
federal income tax purposes. An individual is considered as the owner of the
stock owned, directly or indirectly, by or for family members as defined by
section 318(a)(1) of the Internal Revenue Code. MCL 208.1115(2).
Whether a dividend received by a shareholder represents previously taxed S corporation earnings is irrelevant to the determination of whether a shareholder meets the definition of "active shareholder." The statutory definition merely requires that the shareholder receive compensation, director's fees, or dividends from the business.