Revenue Administrative Bulletin 2020-24

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

Approved: December 21, 2020

(Replaces Revenue Administrative Bulletin 1996-4)

RAB 2020-24.  This bulletin updates and replaces Revenue Administrative Bulletin 1996-4 to reflect statutory changes to the statute of limitations extension provision of the Revenue Act enacted by Public Act 3 of 2014 (“PA 3”).   In all other respects, this bulletin restates the discussion contained in Revenue Administrative Bulletin 1996-4.

Limitation Period for Claiming Refund

The Revenue Act provides that a taxpayer must make a claim for refund of taxes overpaid, or credits in excess of the tax due, within four years from the date set for filing the original return.[1]  A shorter limitation period of ninety days from the date set for filing a return applies if the refund claim is based upon the validity of a tax law based on the laws or constitution of the United States or the State constitution of 1963.[2]  

An extension of time allowed to file a return later than the original due date extends the filing period of a refund claim.  An extension to file is not, however, an extension of time to pay the tax liability due, if any.[3]  An extension of time to file the federal return automatically extends the time to file the Michigan return to the new federal due date for individuals, composite filers, and fiduciaries so long as the taxpayer pays the estimated tax due.[4]  If a federal extension has not been obtained, a Michigan extension can be requested by filing Form 4, Application for Extension of Time to file Michigan Tax Returns.  The Department will grant a 6-month extension for individual filers and composite return filers and a five-and-a-half-month extension for fiduciary filers. 

An extension of time to file the federal return automatically extends the time to file the Michigan return to the last day of the eighth month beyond the original due date for Michigan Business Tax and Corporate Income Tax filers, provided the taxpayer files Form 4, Application for Extension of Time to file Michigan Tax Returns, and pays the estimated tax due.[5]    

The Revenue Act also permits the filing period to be extended where the taxpayer and the Department consent in writing that the period be extended.[6] 

With respect to audits, PA 3, effective February 6, 2014, modified the Revenue Act’s extension provisions.  Prior to the enactment of PA 3, the Revenue Act suspended the statute of limitations, permitting the filing period for refund claims to be tolled pending final determination of a tax from an audit, conference, hearing and litigation of a federal income tax liability or liability for a tax administered by the Department plus one year after that period. This suspension was allowed only for those items that were the subject of the audit, conference, hearing, or litigation.[7] 

PA 3, although enacted on February 6, 2014, amended the Revenue Act to require that audits commenced after September 30, 2014, be completed and a preliminary audit determination provided within 1 year of the expiration of the 4-year statute of limitations. The amendment also requires the Department to issue the final assessment within 9 months of the preliminary audit determination unless the Department and the taxpayer otherwise agree in writing to extend the date for the final assessment or the taxpayer seeks reconsideration of the preliminary audit determination or an informal conference.[8]   

Under PA 3, the statute of limitations is no longer tolled for the audit period plus one year.  Instead, the statute of limitations is extended for the length of time beyond the limitations period that it takes to issue a preliminary audit determination but no longer than one year.[9]  So long as the preliminary audit determination is issued within one year of the expiration of the statute of limitations, the limitations period is extended an additional nine months for issuance of a final assessment.[10]  The statute of limitations is extended for the same period for refund claims.[11]

For state audits commenced in the period between February 6, 2014, and September 30, 2014, no tolling or extension of the statute of limitations is available for refund requests or credit claims.[12]

The statute of limitations is also extended for the period pending the completion of an appeal of a final assessment[13] and for a period of ninety days after a decision and order from an informal conference before the Department or a court order that finally resolves an appeal of a decision of the Department in a case in which a final assessment was not issued prior to appeal.[14]

Amount of Refund

The procedure by which the Department determines the amount of a taxpayer’s refund is defined by section 30 of the Revenue Act, which states, in part, that:

(1) The department shall credit or refund an overpayment of 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 . . . .

(2) A taxpayer who paid a tax that the taxpayer claims is not due may petition the department for refund of the amount paid . . . . If a tax return reflects any overpayment or credits in excess of the tax, the declaration of that fact on the return constitutes a claim for refund. If the department agrees the claim is valid, the amount of overpayment, penalties and interest shall be first applied to any known liability and the excess, if any shall be refunded to the taxpayer . . . .

(3) . . . . Interest at the rate calculated under section 23 for deficiencies in the tax payments shall be added to the refund commencing 45 days after the claim is filed or 45 days after the date established by law for the filing of the return, whichever is later. Interest on refunds intercepted and applied as provided in section 30a shall cease as of the date of the interception . . . .^[15]

Notice of Refund Claim; Valid Return Defined

The Department must receive notice of a valid refund claim within the limitations period under section 27a of the Revenue Act.  If a tax return reflects an overpayment, or credits in excess of the tax, the declaration of that fact on the return constitutes a valid claim for refund.  A return is generally considered valid if it contains sufficient information for the Department to determine the amount of refund.  Although a “claim” or “petition” need not take any specific form, it must be in writing and clearly demand, request, or assert a right to a refund.[16] 

Tax Refund Intercepted and Applied to Taxpayer Liability

If the Department determines that the taxpayer has a valid claim for a refund, and it identifies any liability of the taxpayer to the state, it will apply the refund amount in the manner provided in section 30a of the Revenue Act.[17]

If there is any excess refund remaining, the Department will refund that amount or credit it to any current or subsequent tax liability as directed by the taxpayer.

Rate of Interest

The Department will credit or refund an overpayment of taxes, penalties and interest erroneously assessed and collected, and taxes, penalties, and interest that are found unjustly assessed, excessive in amount, or wrongfully collected.[18]

Interest at the rate of one percentage point above the adjusted prime rate will apply to overpayments.[19]  

The interest rate for underpayments and overpayments is announced semiannually, at the beginning of April and at the beginning of October, in Revenue Administrative Bulletins entitled “Interest Rate.”  The bulletin announces both the annual and the daily interest rate to be applied to tax deficiencies, refunds, and credits.

Date Interest Accrues and Ends

Interest is added to a refund commencing 45 days after the claim is filed or 45 days after the date established by law for the filing of the return, whichever is later.[20]  In order to satisfy the requirements of section 30 of the Revenue Act and trigger the 45–day period before interest begins to accrue on a tax return, a taxpayer must (1) have paid the disputed tax, (2) make a “claim” or “petition,” and (3) “file” the claim or petition.[21] Although a “claim” or “petition” need not take any specific form, it must clearly demand, request, or assert a right to a refund.[22] The claim must also be in writing.  A claim for refund is filed when the taxpayer gives the Department adequate notice of the claim within the appropriate limitation period.[23]  If a tax refund is intercepted and applied to another taxpayer liability, interest shall end as of the date of interception.[24]