HB-4291, As Passed Senate, February 25, 2014

SENATE SUBSTITUTE FOR

HOUSE BILL NO. 4291

A bill to amend 1941 PA 122, entitled

"An act to establish the revenue collection duties of the

department of treasury; to prescribe its powers and duties as the

revenue collection agency of this state; to prescribe certain

powers and duties of the state treasurer; to establish the

collection duties of certain other state departments for money or

accounts owed to this state; to regulate the importation, stamping,

and disposition of certain tobacco products; to provide for the

transfer of powers and duties now vested in certain other state

boards, commissions, departments, and offices; to prescribe certain

duties of and require certain reports from the department of

treasury; to provide procedures for the payment, administration,

audit, assessment, levy of interests or penalties on, and appeals

of taxes and tax liability; to prescribe its powers and duties if

an agreement to act as agent for a city to administer, collect, and

enforce the city income tax act on behalf of a city is entered into

with any city; to provide an appropriation; to abolish the state

board of tax administration; to prescribe penalties and provide

remedies; and to declare the effect of this act,"

by amending section 21 (MCL 205.21), as amended by 2014 PA 3.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 21. (1) If a taxpayer fails or refuses to make a return

or payment as required, in whole or in part, or if the department

has reason to believe that a return made or payment 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. By its duly authorized agents, the

department may examine the books, records, and papers and audit the

accounts of a person or any other records pertaining to the tax. A

taxpayer who has been audited by the department or its agent or a

taxpayer whose books, records, and papers have been examined by the

department shall, upon request, be provided a complete copy in

printed or electronic format of the complete audit work papers and

the audit report of findings. Any audit performed by the department

or its duly authorized agents under section 3(a) shall be performed

in accordance with auditing standards which shall include, but are

not limited to, confidentiality, technical training, independence,

due professional care, planning, supervision, understanding of the

entity audited including internal control and an assessment of

risk, audit evidence and documentation, sampling and sampling

projections, and elements of the audit report of findings. The

department shall promulgate administrative rules on audit standards

within 1 year of the date of enactment of the amendatory act that

added this sentence.

(2) In carrying out this section, the department and the

taxpayer shall comply with the following procedure:

(a) The department shall send to the taxpayer a letter of

inquiry stating, in a courteous and nonintimidating manner, the

department's opinion that the taxpayer needs to furnish further

information or owes taxes to the state, and the reason for that

opinion. A letter of inquiry shall also explain the procedure by

which the person may initiate communication with the department to

resolve any dispute. This subdivision does not apply in any of the

following circumstances:

(i) The taxpayer files a return showing a tax due and fails to

pay that tax.

(ii) The deficiency resulted from an audit of the taxpayer's

books and records by this state.

(iii) The taxpayer otherwise affirmatively admits that a tax is

due and owing.

(b) If the dispute is not resolved within 30 days after the

department sends the taxpayer a letter of inquiry or if a letter of

inquiry is not required pursuant to subdivision (a), the

department, after determining the amount of tax due from a

taxpayer, shall give notice to the taxpayer of its intent to assess

the tax. The notice shall include the amount of the tax the

department believes the taxpayer owes, the reason for that

deficiency, and a statement advising the taxpayer of a right to an

informal conference, the requirement of a written request by the

taxpayer for the informal conference that includes the taxpayer's

statement of the contested amounts and an explanation of the

dispute, and the 60-day time limit for that request.

within 60 days after the taxpayer receives a notice of intent to

assess, remits the uncontested portion of the liability, and

provides a statement of the contested amounts and an explanation of

the dispute, the taxpayer is entitled to an informal conference on

the question of liability for the assessment.

(d) Upon receipt of a taxpayer's written notice, the

department shall set a mutually agreed upon or reasonable time and

place for the informal conference and shall give the taxpayer

reasonable written notice not less than 20 days before the informal

conference. The notice shall specify the intent to assess, type of

tax, and tax year that is the subject of the informal conference.

The informal conference provided for by this subdivision is not

subject to the administrative procedures act of 1969, 1969 PA 306,

MCL 24.201 to 24.328, but is subject to the rules governing

informal conferences as promulgated by the department in accordance

with the administrative procedures act of 1969, 1969 PA 306, MCL

24.201 to 24.328. The taxpayer may appear or be represented by any

person before the department at an informal conference, and may

present testimony and argument. At the party's own expense and with

advance notice to the other party, a taxpayer or the department, or

both, may make an audio recording of an informal conference. A

taxpayer who has made a timely request for an informal conference

may at any time withdraw that request by filing written notice with

the department. Upon receipt of the request for withdrawal from the

informal conference process, the department shall issue a decision

and order of determination and, where appropriate, a final

assessment, from which a taxpayer may seek an appeal as provided

under section 22.

(e) After the informal conference, the department shall render

a decision and order in writing, setting forth the reasons and

authority, and shall assess the tax, interest, and penalty found to

be due and payable. The decision and order are limited to the

subject of the informal conference as included in the notice under

subdivision (d).

(f) If the taxpayer does not protest the notice of intent to

assess within the time provided in subdivision (c), the department

may assess the tax and the interest and penalty on the tax that the

department believes are due and payable. An assessment under this

subdivision or subdivision (e) is final and subject to appeal as

provided in section 22. The final notice of assessment shall

include a statement advising the person of a right to appeal.

(3) If as a result of an audit it is determined that a

taxpayer is owed a refund, the department shall send a notice to

the taxpayer stating the amount of the refund the department

believes is owed to the taxpayer as a result of the audit. The

notice shall inform the taxpayer of his or her appeal rights. If

the taxpayer disputes the findings of the audit, the taxpayer may

serve written notice upon the department in the same manner as

provided for in subsection (2)(c) and the taxpayer is entitled to

the same informal conference and subsequent appeals as provided for

in this section.

(4) If a protest to the notice of intent to assess the tax is

determined by the department to be a frivolous protest or a desire

by the taxpayer to delay or impede the administration of taxes

administered under this act, a penalty of $25.00 or 25% of the

amount of tax under protest, whichever is greater, shall be added

to the tax.

(5) During the course of the informal conference under

subsection (2)(d), the taxpayer by written notice may convert his

or her contest of the assessment to a claim for a refund. The

written notice shall be accompanied by payment of the contested

amount. The informal conference shall continue and the department

shall render a decision and issue an order regarding the claim for

refund.

(6) For audits commenced after September 30, 2014, the

department must complete fieldwork and provide a written

preliminary audit determination for any tax period no later than 1

year after the period provided for in section 27a(2) without regard

to the extension provided for in section 27a(3). The limitation

described in this subsection does not apply to any tax period in

which the department and the taxpayer agreed in writing to extend

the statute of limitations described in section 27a(2).

(7) For audits commenced after September 30, 2014, unless

otherwise agreed to by the department and the taxpayer, the final

assessment issued under subsection (2)(f) must be issued within 9

months of the date that the department provided the taxpayer with a

written preliminary audit determination unless the taxpayer, for

any reason, requests reconsideration of the preliminary audit

determination or the taxpayer requests an informal conference under

subsection (2)(c). A request for reconsideration by a taxpayer

permits, but does not require, the department to delay the issuance

of a final assessment under subsection (2)(f).