10. What income is reported on the composite return?
A flow-through entity (FTE) reports the distributive share of income (loss) of participating nonresident members by using its federal return and adjusting to Michigan taxable income through additions, subtractions, allocation and/or apportionment. The return allows for a separation of income (loss) attributable to Michigan resident members and/or nonparticipating nonresident members, if any exist, this ensures that only the income of the participating nonresident members is being taxed on the return.
The Michigan Composite Individual Income Tax Return (Form 807) is a calendar year return for nonresident individuals. If the filing FTE has a fiscal tax year for federal purposes, it would use the appropriate Form 807 that corresponds to the year the ultimate owners will include the FTE’s income in their federal individual income tax filing.