Flow-Through Entity for R&D Tax Credit

A flow-through entity is a business type that passes income and deductions to its owners, who typically report those items on their own income tax returns.

The Michigan Income Tax Act defines a flow-through entity for purposes of the Research and Development (R&D) Tax Credit as any of the following:

• S corporation
• General partnership
• Limited partnership
• Limited liability partnership
• Limited liability company (LLC) not taxed as a corporation for federal income tax purposes

This term is defined under Michigan Compiled Law (MCL) 206.701(d).

Any entity disregarded or treated as a corporation under MCL 206.699 would not be considered a flow-through entity for the R&D Tax Credit. Common examples include:

• A single-member LLC that has not elected to be taxed as a corporation
• A sole proprietorship
• An entity taxed as a C corporation for federal income tax purposes for the applicable tax year