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A possible refund opportunity under Michigan corporate taxes could justify taking action before the end of the year. The issue concerns the Michigan Department of Treasury’s position that the Internal Revenue Code (“IRC”) 163(j) interest expense limitation (“the 163(j) limitation”) should be calculated on a separate entity basis rather than of a unitary group. , a position that Miller Canfield challenges on behalf of several clients. The statute of limitations for refunds for tax year 2019 expires on December 31, 2024 for most businesses, and therefore time is of the essence to protect the right to reclaim overpaid taxes for that year.

On June 8, 2020, the Treasury Department released a Notice: Corporate Tax Treatment of the 163(j) Limitation on Corporate Interest (“Notice”). In the notice, the Treasury Department took the position that the members of a Michigan combined group must calculate the 163(j) limitation on a per-entity basis, despite the fact that Michigan’s unitary filing method otherwise treats the combined group as if it were a single entity. The Treasury’s position is based on the wording in the law, which states that each member of the unitary group must be “treated” as a separate person, but the position contradicts other provisions of the law that calculate the limitation on a combined entity. basis, as is done at the federal level and all but one other state. Most companies stood by Michigan’s position for the 2019 tax year, but we believe their position is wrong and those companies may be entitled to a refund.

The impact of Treasury’s position depends on the corporate structure and where any debt is located within the consolidated group, but we have encountered some clients issuing up to $1 million per year. Companies that have a holding company structure or that have otherwise been unable to shift debt to their operating companies typically experience the greatest adverse effects from the individual corporate constraint.

We would be happy to discuss the matter to explore whether a claim for reimbursement could be justified at least for the 2019 tax year, and how we can assist with the filing. There is still time to request a refund for 2019, but we can still submit a request years after 2019.