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New Michigan Tax Amnesty Law

Posted by attorney Stephen Dunn

On October 5, 2010, Governor Granholm signed a Michigan tax amnesty bill into law. The new law provides that, from May 15, 2011 through June 30, 2011 (“amnesty period"), Michigan Treasury shall waive all criminal and civil penalties with respect to a taxpayer’s failure to timely file a tax return or failure to pay tax reportable on the return, provided the taxpayer (1) filed the tax return or an amended return, (2) pays all tax owing with respect to the return, and (3) makes application for amnesty in such from as Michigan Treasury may prescribe. As of October 6, 2010, Treasury had not yet prescribed any procedures for applying for amnesty, but expected to do so by the week of October 11, 2010.

The new amnesty law is a wonderful opportunity for taxpayers. The penalty for failing to timely file a tax return required by the State of Michigan is 5% of the tax reportable on the return for the first two months of the failure, and 5% for each month thereafter, up to a maximum of 25%. The penalty for failing to pay tax due to the State of Michigan is 10% of the tax if the failure to pay is due to negligence without intent to defraud the State; 25% if due to intentional disregard of the law but not intent to defraud; or 100% if due to intent to evade the tax. If a taxpayer fails to make tax deposits required by Michigan Treasury, such as estimated tax deposits, there is an additional penalty of 0.167% for each day of the failure up to a total of 25% of the undeposited tax.

Ordinarily, Michigan Treasury waives penalties upon a showing satisfactory to it of that the noncompliance was due to reasonable cause and not negligence, intentional disregard of the law, or intent to evade or defraud, as the case may be. But in the State’s recent budgetary woes, waiver of penalties has been a tough sell at Treasury. A taxpayer who unsuccessfully petitions Michigan Treasury to waive penalties can litigate whether Treasury abused its discretion in refusing to waive the penalties. But such litigation holds little promise, as the case would be decided by a judge who is an employee of the State of Michigan.

Under the new amnesty law, a taxpayer can have penalties waived without proving reasonable cause and the absence of negligence, intentional disregard of the law, or intent to evade or defraud, as the case may be, by simply filing the delinquent tax return or paying the delinquent tax and applying for waiver within the amnesty period. Taxpayers should be sure to carefully follow rules promulgated by Treasury for seeking amnesty. Taxpayers should not miss this opportunity.

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