FTE and Fiduciary IIT

Both resident and nonresident estates or trusts must include a copy of the federal Schedule K-1 notes or other supporting documentation received from a flow-through entity of which it is a direct member. That documentation should include any information from indirectly owned electing flow-through entities as well.

Both resident and nonresident estates or trusts that are direct or indirect members of a flow-through entity that elected to pay the Michigan FTE tax, must supply supporting documentation when filing their tax return.

Acceptable supporting documentation includes:

• copy of the federal Schedule K-1 notes, or
• other documentation provided by the flow-through entity that communicates the estate or trusts’ allocable share of the Michigan FTE tax credit.

A resident estate or trust must multiply its allocated share of Michigan FTE tax (as reported via the electing flow-through entity) by the ratio of the flow-through entity’s business income tax base (as retained by the estate or trust) to the flow-through entity’s total business income tax base included in distributable net income.

The adjustment should be reported, by the resident estate or trust, as a subtraction on the Michigan Fiduciary Income Tax Return, Schedule 1 (Form MI-1041).

The resident estate or trust must subtract its share of any Michigan FTE tax refunded to the flow-through entity and included in the flow through entity’s income for the tax year, and therefore included in the resident estate or trust’s distributive share and federal taxable income. 

A nonresident estate or trust must multiply its allocated share of Michigan FTE tax (as reported via the electing flow-through entity) by 95.75% and by the ratio of the flow-through entity’s business income tax base (as retained by the estate or trust) to the total flow-through entity’s business income tax base included in distributable net income.

No, a nonresident estate or trust that is a direct or indirect member of a flow-through entity (that elected to pay the Michigan FTE tax) does not report an addition for the Michigan FTE tax paid and deducted on the federal return of the flow-through entity.

No, an electing flow-through entity that files a composite return on behalf of an estate or trust should claim the participating estate's or trust’s Michigan FTE tax credit on the Michigan Composite Individual Income Tax Return (Form 807). The estate or trust may not claim the same credit again if it files a Michigan Fiduciary Income Tax Return (Form MI-1041) to report other Michigan income.

Yes, if the estate or trust passed any flow-through income to its beneficiaries, then the estate or trust must report the allocable share of the Michigan FTE tax credit to those beneficiaries. This information must be reported to the beneficiaries on or before the due date of the Michigan Fiduciary Income Tax Return (MI-1041). 

The Michigan FTE tax credit is calculated by multiplying the credit amount (as reported to the estate or trust) by the ratio of the flow-through entity’s business income tax base that was distributed to the beneficiaries, to the flow-through entity’s total business income tax base included in the distributable net income of the estate or trust.