Revenue Administrative Bulletin 1993-14

Approved: November 23, 1993

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

(Replaces Revenue Administrative Bulletin 1989-36)

RAB-93-14. This bulletin explains 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 amendments to the revenue act made by Public Act 14 of 1993 have been incorporated to update this bulletin. The applicable interest that will accrue on the overpayment of excess is also discussed.

Limitation Period for Claiming Refund

The revenue act [MCL 205.27a(2); MSA 7.657(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 four 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 liability administered by the Department).

Claims for refunds based upon the validity of a tax law based on the laws of [or] the Constitution of the United States or the State Constitution of 1963 shall not be paid unless the claim is filed within 90 days after the date set for filing a return [MCL 205.27a(6); MSA 7.657(27a)(6)].

The 90-day requirement as stated in section (6) does not apply to a claim for the refund of a tax paid for the 1984 tax year or a tax year after the 1984 tax year on income received as retirement or pension benefits from a public retirement system of the United States government if the claimant waives any claim for the refund of such a tax paid for a tax year before 1984 [MCL 205.27a(7); MSA 7.657(27a)(7)]. Claims for refunds to which this subsection applies shall be paid in accordance with the following schedule.

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 [of] 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; MSA 7.657(30a), then the Department will first apply the amount of the refund in the manner provided in MCL 205.30a(2) [and] (3); 7.657(30a)(2)(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 of less than $1.00 will not be paid to the taxpayer [MCL 205.30; MSA 7.657(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.

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); MSA 7.657(21)(1) which provides:

"[i]f the department has reason to believe that a return 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, records, 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

For tax periods occurring after March 31, 1993, the Department will credit or refund an overpayment of taxes; taxes, penalties, and interest erroneously assessed and collected; and taxes, penalties, and interest that are found unjustly assessed, excessive in amount, or wrongfully collected with interest at the rate of one percentage point above the adjusted prime rate as described in MCL 205.23; MSA 7.657(23) [MCL 205.30(1); MSA 7.657(30)(1)]. The interest rate for overpayments paid prior to April 1, 1993 remains at the monthly rate of 3/4 of one percent.

The interest rate for underpayments and overpayments is announced biannually in Revenue Administrative Bulletins entitled: "Interest Rate." Each year, a bulletin is released at the beginning of April and the beginning of October which announces both the annual and daily interest rate to be applied to tax deficiencies, refunds and credits.

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 [MCL 205.30(3); MSA 7.657(30)(3)]. Interest shall not accrue after the date that a refund is intercepted and applied to a liability described in MCL 205.30a; MSA 7.657(30a).

Period Suspended for Calculating Interest for Invalid 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 refund. A refund will be issued if the taxpayer supplies the required information necessary to process the return. This information must be supplied within four years from the date set for filing the original return [MCL 205.27a; MSA 7.657(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); MSA 7.657(30)(3)].

Example:

Taxpayer A claimed a refund of $2,500.00 on his 1992 Michigan income tax return filed on April 15, 1993. 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, 1993 that the property tax credit of $1,200.00 was denied until the supporting form was supplied. The balance of the refund in the amount of $1,300.00 was processed. On October 10, 1993, the Department received the taxpayer's MI-1040CR form. The additional refund of $1,200.00 was processed on October 31, 1993, without application of interest. Interest was not applied because the taxpayer did not supply the Department with a valid return until October 10, 1993, and the Department issued the refund within 45 days.