Pro-forma FTI calculation
Members of a UBG each must compute a pro-forma FTI as a single person. The pro-forma FTI amount is subject to statutory adjustments to arrive at the UBG member’s tax base and, ultimately, the UBG’s combined CIT liability. For this purpose, FTI generally is defined as taxable income defined in IRC Section 63, with certain exceptions (e.g., Sections 168(k) and 199).
The RAB concludes that the CIT does not follow the federal consolidated return regulations because “those regulations are outside of the chapter 1 definition of FTI.”
As noted above, each UBG member must be treated as a single person; thus, a pro-forma FTI calculation must be made by each member. Each member’s pro-forma FTI is reported on Form 4897, and amounts for all members are summed together to determine the UBG’s combined FTI. Because of differences in the federal regulations and the CIT, the combined pro-forma FTI of a UBG will not necessarily equal the FTI on the federal consolidated return, even if membership in the two returns is the same.
The RAB provides an example whereby UBG members compute FTI without using the federal consolidated investment rule treatment. The Department concludes that “[b]ecause the CIT computes FTI under IRC section 63 . . . the consolidation rules under chapter 6 are not taken into account.”
A second example highlights the different FTI calculations required for Michigan purposes due to bonus depreciation adjustments and UBG group member composition different than that of the federal consolidated group. The RAB provides that the examples “illustrate both the difference in composition between a consolidated group and a UBG as well as adjustments that must be made in computing each member’s FTI under the CIT. The pro-forma FTI of each member of the UBG is subject to the statutory adjustments . . . and is the starting point for computing the tax base of each member.”