Revenue Administrative Bulletin 1989-36

CREDIT OR REFUND OF OVERPAYMENT OF TAXES OF CREDITS IN EXCESS OR TAX DUE AND APPLICABLE INTEREST

Approved: April 25, 1989

RAB-89-36. This Bulletin explain the Department of Treasury’s position concerning the statute of limitations for claiming and issuing a tax refund. This position is applicable to refunds that are governed by the Michigan Revenue Act. The applicable interest that will accrue on the overpayment or excess is also discussed.

Limitation Period for Claiming a Refund

The Michigan Revenue Act, MCL 205.27a(2) provides that a taxpayer must file a return for a refund of taxes overpaid, or credits in excess of the tax due within 4 years from the date set for filing the original return. An extension of time allowed to file a return later than the original due date does extend the period to claim a refund. The period of time to claim a refund is extended where provided by statute (i.e., pending final determination of a tax from an audit, conference, hearing, and litigation of a federal liability or of a tax administered by the Department).

Determination of the Amount of a Refund

The size of a refund is equal to the sum of the amount of tax, interest, and penalty paid, plus allowable credits that are in excess the tax imposed by law. A claim for credit or refund may include taxes, penalties, and interest erroneously overpaid. Further, taxes, penalties, and interest found to be unjustly assessed, excessive in amount, or wrongfully collected are subject to refund.

Refund Applied to Liability of the Taxpayer

If it is determined that the taxpayer has a valid claim for a refund and the Department identifies any liability of the taxpayer described in Subsection (2) of MCL 205.30a, then the Department will first apply the amount of the refund in the manner provided in MCL 205.30a(2) and (3). If there is any excess refund remaining, then the Department will refund that amount or credit it to any current or subsequent tax liability as the taxpayer wishes. However a refund for an amount less than $1.00 will not be paid to the taxpayer. (See the Michigan Revenue Act, MCL 205.30.)

Valid Return Defined

A return is not considered valid unless the taxpayer has declared in writing, under the penalties of perjury, that the information contained on the return has been verified and is correct. A return is generally considered valid unless the department finds that the information purported to be verified and correct by the taxpayer is incorrect. A taxpayer who does not include information required to be included by law has not filed a valid return. Also, a return is invalid if the return is not filed on the correct form or if the taxpayer’s name, address, identification number, or signature are either missing or illegible.

Audit and Examination

The amount of a refund declared on a tax return constitutes a claim for refund. However, the refund may be subject to an examination conducted from processing parameters established by the Department, or from an audit described in MCL 205.21(1). Section 21 (1) provides that:

“[I]f the department has reason to believe that a return made does not supply sufficient information for an accurate determination of the amount of tax due, the department may obtain information on which to base an assessment of the tax. The department, by its duly authorized agents, may examine the books, record, and papers and audit the accounts of a person or any other records pertaining to the tax…”

Credit or Refund Interest

Rate and Commencing Date of Interest.

Pursuant to the Michigan Revenue Department Act, MCL 205.30(2), the Department will add interest on overpayments of taxes, penalties, interest, and credits in excess of the tax due at the rate of ¾ of 1 percent per month. Interest begins the later of 45 days after the claim for a refund is filed, or 45 days after the date established by law for the filing of the return. Interest shall not accrue after the date that a refund is intercepted and applied to a liability described in MCL 205.30a.

Period Suspended for Calculating Interest for Valid Return.

A claim for a refund will be denied if the return does not contain sufficient information for the Department to determine the amount of a refund. A refund will be issued if the taxpayer supplies the required information necessary to process the return. This information must be supplied within 4 years from the date set for the filing of the original return. [MCL 205.27a] Interest will not be applied to a refund until 45 days after the Department receives information sufficient to determine that the return is valid and that the claim for refund is correct. [MCL 205.30(3)]

Example:  Taxpayer A claimed a refund of $2,500.00 on his 1986 Michigan income tax return filed on April 15, 1987. He did not attach the MI-1040CR homestead property tax credit form to support the credit claimed in the amount of 1,200.00. The Department notified the taxpayer on May 20, 1987, that the property tax credit of 1,200.00 is denied until the supporting form is supplied. On October 10, 1987, the Department received the taxpayer’s MI-1040CR form. The additional refund of 1,200.00 was processed on October 31, 1987 without application of interest. Interest was no applied because the taxpayer did not supply the Department with a valid return until October 10, 1987, and the Department issues a refund within 45 days.