Individuals May Owe Michigan Tax on IRC Sec. 965 Income

Individuals and trusts may owe Michigan income tax on IRC Sec. 965 income either as:

– dividend income attributed to the state of residence; or

– business income allocated or apportioned to Michigan.

What is IRC Sec. 965 Income?

IRC Sec. 965 imposes a one-time tax on the previously untaxed earnings and profits of certain foreign corporations. Repatriation of income occurs through a deemed dividend of the earnings and profits.

When Is the Michigan Tax Due?

Individuals and trusts must pay the entire state tax on this income by the original due date for their return, without regard to any extension. Unlike federal law, Michigan does not allow:

– elections to pay the tax over eight years; or

– for S corporation owners, deferral of payment until a triggering event occurs.

Michigan adopts the IRC to calculate adjusted gross income, but not to determine the date that payment is due on that income.

Are Corporations Taxed on IRC Sec. 965 Income?

Corporations will not owe Michigan tax on IRC Sec. 965 income. Michigan allows corporations to exclude foreign sourced dividends from taxable income. Further details on the corporate income tax treatment of IRC Sec. 965 income were previously reported. (TAXDAY, 2018/07/06, S.11)

Subscribers can view the Treasury Update.

Treasury Update, Michigan Department of Treasury, November 2018

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