Form 5772 Instructions — Michigan Flow-Through Entity Tax Annual Return (TY2025)

Instructions for Form 5772

# Michigan Flow-Through Entity Tax Annual Return

Purpose
To calculate and report the annual Flow-Through Entity tax (FTE tax) under Part 4 of the Michigan Income Tax Act, for a flow-through entity that has made an election to file and pay the tax.
Common Terms Used In These Instructions
Member when used in reference to a flow-through entity, means a shareholder of an S corporation or a partner or member in a partnership. A member can be an individual, trust, or estate, regardless of residency in Michigan, another flow-through entity, or a C corporation, insurance company, or financial institution under the CIT. However, income or loss attributed to a member that is a C corporation, insurance company, or financial institution is not subject to the FTE tax.
Tax year means the calendar year, or the fiscal year ending during the calendar year, upon the basis of which the tax base of a taxpayer is computed under Part 4 of the Income Tax
Act. If a return is made for a fractional part of a year, tax year means the period for which the return is made. A taxpayer that has a 52- or 53-week tax year beginning not more than 7 days before the end of any month is considered to have a tax year beginning on the first day of the subsequent month.
A member's tax year that ends with or within the taxpayer's tax year is referred to in these instructions as the same tax year.
For example, Company X has two individual owners, Y and
Z. Company X's tax year ends June 30, 2026. Y and Z's tax years end December 31, 2026. If X is the filer of this return, its tax year ending in 2026 is reported on this 2025 form. Y and Z file their individual income tax (IIT) returns on 2026 forms. However, these instructions will refer to Y and Z's 2026 tax year as the same tax year as Company X's ending June 30, 2026.

# Who Should File

Flow-through entities that have nexus with Michigan and that have made an election for a three-year period that includes the tax year that begins in 2025 must file this annual return.
For purposes of this tax, flow-through entity means an entity that for the applicable tax year is treated as an S corporation or a partnership under the internal revenue code for federal income tax purposes. Flow-through entity does not include a publicly traded partnership, a disregarded entity, or a financial institution subject to the Corporate Income Tax (CIT) franchise tax.
Taxpayer as used in these instructions refers to a flow-through entity that has nexus in Michigan and elects to be subject to the FTE tax under Part 4 of the Michigan income tax act.
Election into the Tax. An election to pay the FTE tax lasts for three tax years and must be made by the last day of the ninth month after the end of the flow-through entity's tax year (September 30 for calendar year filers). Taxpayers electing after the due date of the annual return should closely review additional Treasury guidance on the Flow-Through Entity Tax online. The page includes information on "Flow-Through Entity Tax Election Relief in Light of One Big Beautiful Bill Act" and "2024 PA 216 Amends Flow-Through Entity Tax."
The election can be made only by submitting an electronic payment to the Department through Michigan Treasury Online (MTO). To be valid, the payment must be designated as applicable to the tax year for which the election becomes effective. There is no requirement as to the amount of the payment. For example, the payment could be an amount that is nominal, enough to cover quarterly estimated payments, or the full annual liability. Payments submitted outside of MTO will not constitute a valid election to pay the FTE tax.
Nexus. A taxpayer is subject to the FTE tax if the taxpayer makes an election and has nexus in Michigan, which means the taxpayer has a physical presence in Michigan for a period of more than 1 day during the tax year, actively solicits sales in Michigan and has gross receipts sourced to Michigan, or is a member or has an ownership interest or a beneficial interest in a flow-through entity, directly, or indirectly through 1 or more other flow-through entities, that has nexus in Michigan. For definitions of "actively solicits," "gross receipts," and "physical presence," see MCL 206.811.

# When to File

The FTE tax annual return is required to be filed by the last day of the third month after the end of the taxpayer's tax year. For calendar filers, that date is March 31. If the due date falls on a weekend or holiday, the due date is the next business day. An annual return must be filed by an electing flow-through entity each year of the three-year period that the entity is subject to tax, even if the liability is zero.
NOTE: The member credits that relate to the tax year filed on this annual return must be paid by the due date of the return including extensions. Payments made after that date to cover liability on this return do not qualify as a credit for members' same tax year. However, those allocated amounts will be eligible to be claimed as credit on a later tax year's member return once that liability is paid.
Extension of Time to File. Flow-through entities may request an extension of time to file the annual tax return. An approved extension extends the due date for filing the annual return for an additional 6 months (until September 30 for calendar year filers). However, an extension only extends the time to file the return and does not extend the time to pay the tax. A flowthrough entity requesting an extension must therefore pay its estimated tax liability by the initial due date of the return.
Interest and, if applicable, penalty, will accrue from the initial due date of the return until the tax is paid.
To receive an extension of the Michigan return, a taxpayer must make a request on MTO. This application is required regardless of whether the taxpayer has an approved extension of their federal return from the Internal Revenue Service or the request for extension is based on good cause. Do not send a copy of the federal extension to Treasury; however, retain a copy for your records.
To apply for an extension, log into MTO at mto.treasury. michigan.gov and select the applicable business on the FTE Dashboard. Follow the links to "File/Pay/Amend a Tax Return" under the FTE Actions menu, then select "Extension" for the applicable tax year. Once the request is completed, the option to make an Extension Payment is available. Any required payment must be made on MTO by the original due date of the return, or the extension request will be denied. Flow-through entities that are electing into a three-year period that begins with this tax year after the original return due date do not need to apply for an extension for the first year of the period; an extension will be assumed under those circumstances.

# How to File

The flow-through entity annual tax return can only be filed through Michigan Treasury Online (MTO).
Returns submitted outside of MTO will not be accepted and may result in the accrual of penalty and interest.
What to file
State Forms. In addition to this form, the following supporting schedules must be filed:

• If applicable, Form 5773, Schedule for Reporting Nonelecting Flow-Through Entity Income
• Form 5774, Schedule for Reporting Member Information for a Flow-Through Entity *Do not send copies of K-1s. Treasury will request them if necessary.

# Estimated Payments

If a taxpayer reasonably expects its annual liability to exceed $800, the taxpayer must make quarterly estimated payments.
For calendar filers, payments are due April 15, June 15, September 15, and January 15. For fiscal year filers, payments are due the same dates that correspond to the due dates in the calendar year. Taxpayers are subject to penalty and interest for failure to pay estimated tax payments as required under the Revenue Act. An exception may apply to quarterly payments due prior to the taxpayer making an election. See MCL 206.831.

# Tiered Structures

A tiered structure refers to a situation where a flow-through entity has at least one other flow-through entity as a member.
Within a tiered structure, each flow-through entity that has business activity in Michigan may or may not elect to pay the Michigan FTE Tax. Only entities in the tiered chain of ownership that elect into the tax need to file FTE returns; entities that do not elect should not file FTE returns.
Special adjustments are necessary in computing the tax base for entities in tiered structures to ensure that all direct and indirect members receive an appropriate amount of credit and report the appropriate adjustments on their income tax returns.
These adjustments also ensure that tax is not paid more than once on income flowing through the tiers.
Tax Base Adjustments. To prevent double taxation within a tiered structure, positive business income (a positive distributive share) from another entity that elects to pay the Michigan FTE Tax must be removed from the tax base of the filer. This adjustment is captured on line 3 of this return.
Further, a flow-through entity is prohibited from claiming a credit for tax paid by another electing flow-through entity. Instead, credits are passed through via reporting between entities and members (not via reporting to Treasury), to be claimed on income tax returns of the ultimate indirect members that are individuals, fiduciaries, or in rare cases, CIT taxpayers.
Positive business income tax base from non-electing flowthrough entities remains in the tax base of the filer. To ensure that non-electing income is properly taxed and sourced to Michigan, that income is first removed from the tax base, then added back to the tax base of the filer after statutory additions and subtractions and apportionment using the non-electing flow-through entity's sales factor. These related adjustments are captured on lines 3 and 23 of this return, as well as Schedule for Reporting Non-electing Flow-Through Entity Income, Form 5773.
In completing the return, each filer is also required to make certain Michigan-specific additions and subtractions in the computation of its tax base, as reported on lines 5-20 of this form. For a taxpayer that is a member of another flow-through entity, the amounts reported on these lines should exclude the filer's share of such additions and subtractions from another flow-through entity. The taxpayer's share of additions and subtractions from non-electing flow-through entities will be reported separately on Form 5773 and thereafter included with the amount reported on Line 23 of this return.
Reporting Members on Tiered Entity Returns: If a filer can identify any of its indirect members and complete all information on Form 5774, Part 2, for those indirect members, the filer should report the indirect members accordingly. This will help streamline the processing of credit claimants' returns.
Reporting Between Tiers. Regardless of whether an entity elects into the Michigan FTE tax, each entity within a tiered structure must pass through and report to its members all of the relevant Michigan flow-through entity tax information from other flow-through entities. This will allow the information to be reported through the tiered structure to all direct and indirect members of electing flow-through entities, and ultimately to the recipients that need that information. For example, credit claimants must identify the name, FEIN, and amount of credit and tax base adjustment of each entity in the chain of ownership with their income tax return.
NOTE: New IIT supporting forms are required to be filed by members claiming FTE credits. See the "Michigan Schedule

# FTE" (Form 6072) and "Michigan Schedule of Tiered Entities"

(Form 6074) for guidance about the information members must have reported to them from each flow-through entity.

Tiered Structures Filing Example:
Entity C directly owns Entity A and Entity B. Entity A and Entity C elect to pay the Michigan Entity tax, and Entity B does not. On Entity C's return, it subtracts out its share of positive business income from both Entity A and Entity B on line 3. Entity C reports additions and subtractions on lines 5-20 of the return based on only its own activity. Entity C's share of the positive business income from Entity B, a nonelecting entity, is reported on Form 5773 with this return. On that schedule, Entity C's share of additions and subtractions from Entity B's activity are applied, and the resulting business income tax base is apportioned to Michigan using Entity B's sales factor. Next, Entity C's share of Entity B's Michigan business income tax base is carried from the supporting schedule to the return and added in on line 23.
On Entity C's Schedule for Reporting Member Information, Form 5774, the following are separately reported for Resident 1 and Nonresident 2:

• Names and Social Security numbers (SSNs)
• Respective shares of income subject to tax on Entity C's return, which includes business income tax base attributable to Entity B and which is reported on line 26.
• Respective shares of the total tax liability reported on Entity C's return, line 27.

In completing its annual return, if Entity A knows the details about Entity C's members (Resident 1 and Nonresident 2), Entity A should report Resident 1's and Nonresident 2's SSNs, income, and credits on Form 5774. If Entity A does not know that information, Entity A should report Entity B's FEIN, share of income, and credits on Form 5774.
Outside of this return filing, Entity C is required to report to its members identifying information, credits, and tax base adjustments from both Entity A and Entity C. See the "Reporting Between Tiers" section.

# Miscellaneous General Instructions

• Percentages should be carried out four digits to the right of the decimal point. Do not round percentages. For example, 24.154266 percent becomes 24.1542 percent. When converting a percentage to a decimal number, carry numbers out six digits to the right of the decimal point. For example, 24.154266 percent becomes 0.241542.
• Report all amounts in whole dollars. Round down amounts of 49 cents or less. Round up amounts of 50 cents or more. If cents are entered on the form, they will be treated as whole dollar amounts.

# Line-by-Line Instructions

Line 1: Apportionment factor calculation. The business income tax base is apportioned to Michigan using a sales factor. To compute the sales factor, divide the total sales in Michigan during the tax year by the total sales everywhere during the tax year. The apportionment provisions under Chapter 3 of the Michigan Income Tax Act - those used by individual taxpayers with business income - should be used on this return.
Sales includes gross receipts from sales of tangible property, rental of property, proceeds from the sale of property used in the business and providing of services that constitute business activity. Exclude all receipts of nonbusiness income.
Sales of tangible personal property are in Michigan if:

1. The property is shipped or delivered to a purchaser (other than the United States government) within Michigan regardless of the free on board (F.O.B.) point or other conditions of the sale, or
2. The property is shipped from an office, store, warehouse, factory or other place of storage in Michigan and the purchaser is the United States government or the taxpayer is not taxable in the state of the purchaser.

NOTE: The numerator of the sales factor for individual income tax may include "throwback sales." Throwback sales are sales of tangible personal property that originate in Michigan, are made to a purchaser in another state or country and are "thrown back" to the numerator as Michigan sales because they are not taxable by the other state. Throwback sales follow federal P.L. 86-272 standards; the business must have physical presence in the other state or activity beyond solicitation of sales in order to exclude these sales into another state or country from the numerator. There is no "water's edge" for individual income tax purposes.
Sales of other than tangible personal property (e.g., services) are in Michigan if:

1. The business activity is performed in Michigan, or
2. The business activity is performed both in Michigan and in another state(s), but based on cost of performance, a greater proportion of the business activity is performed in Michigan.

There are special apportionment formulas for transportation companies and other authorized taxpayers. Those formulas are identified in Chapter 3 of the Michigan Income Tax Act.
Line 1a: Enter the taxpayer's sales sourced to Michigan, including throwback sales if applicable, made during the tax year.
Line 1b: Enter the taxpayer's total sales everywhere made during the tax year.
Line 2: Enter the taxpayer's business income, which means federal taxable income and includes payments and items of income and expense that are attributable to business activity of the taxpayer and separately reported to its members. Federal taxable income means taxable income as defined in section 63 of the internal revenue code without the deductions described under section 703(a)(2) of the internal revenue code. The deductions described in IRC 703(a)(2) which are excluded from the computation of federal taxable income the following common deductions:

• The deduction for personal exemptions;
• The deduction for charitable contributions;
• The deduction for net operating losses; and
• The deduction for depletion for oil and gas wells.

Flow-through entities should rely on federal forms and guidance for the computation of federal taxable income under IRC 63.
Special Instruction for S Corps: For purposes of computing federal taxable income only, S Corporations are treated as a corporation under IRC 1361(a)(2). S Corporations should accordingly compute federal taxable income by following the instructions and computations included within Form 1120 US Corporation Income Tax Return.
Special Instruction for Partnerships: For purposes of computing federal taxable income only, partnerships are treated as an association taxed as a corporation pursuant to an election under 26 CFR 301.7701-3(a). Partnerships should accordingly compute federal tax income by following the instructions and computations included within Form 1120 U.S.
Corporation Income Tax Return.
Business income includes items of income and expense attributable to the business activity of the taxpayer that are separately reported to its members (e.g., items reported on Schedule K-1). Many of these items will be included in the computation of federal taxable income under IRC 63; however, for any such items of income or expense not included in that calculation, that item should be included as an adjustment in the computation of business income and reported on this line.
Line 3: Enter the taxpayer's positive business income attributable to a distributive share from any other flow-through entity whose tax year ends with or within the taxpayer's tax year. Do not report negative business income attributable to other flow-through entities on this line. Each distributive share that is net positive from one flow-through entity should be reported here; do not net distributive shares from multiple flowthrough entities together before reporting on this line.
NOTE: Positive business income tax base from non-electing flow-through entities in which the taxpayer is a direct or indirect member will be added back at a later point in the return (see Line 23). To ensure that the positive business income is correctly sourced to Michigan, that positive business income should be reported-and thus, removed from the tax base-on this line.
Additions
Taxpayers must report the following additions in completing their return. Report only the amounts from the taxpayer's business activity. Do not include amounts from another flowthrough entity. See Line 23 for instructions on reporting the taxpayer's share of amounts received from a non-electing entity.

# Line 5: Enter, to the extent excluded from federal taxable income, gross interest, dividends, and income from obligations or securities of states and their political subdivisions other than

Michigan. This amount may be reduced by related expenses not allowed as a deduction by Sections 265 and 291 of the Internal Revenue Code (IRC).
Line 6: Enter, to the extent deducted in arriving at federal taxable income, losses on the sale or exchange of obligations of the US government, the income of which this state is prohibited from subjecting to a net income tax.
Line 7: Enter the total amount of charitable contributions deducted in arriving at federal taxable income.

Line 8: Enter the amount of taxes on or measured by net income, including, but not limited to, taxes paid under the Michigan FTE tax, to the extent deducted in arriving at federal taxable income.

Line 9: Enter gross expenses that resulted from the production of oil and gas if that production of oil and gas is subject to Michigan severance tax on oil or gas in 1929 PA 48, to the extent deducted in arriving at federal tax income.

# Line 10: Enter, to the extent deducted in arriving at federal taxable income, gross expenses related to income derived from a mineral subject to the minerals severance tax under the Nonferrous Metallic Minerals Severance Tax Act, 2012 PA

1. A "mineral" is defined in Section 2(c) of the Nonferrous Metallic Mineral Extraction Severance Tax Act, MCL 211.782(c).

Line 11: PA 24 of 2025 requires taxpayers to complete the following calculation if there are adjustments due to decoupling from the federal Internal Revenue Code. If the total on line 9 of the worksheet sum is positive, report it on Form 5772, Line 11.
If the sum total is negative, report it on Form 5772, line 19.

1. Net Bonus depreciation adjustment using IRC 168(k) as of 12/31/2024 … 1. 00
2. Gain/loss adjustment on disposition of depreciable property, due to Michigan's
3. 00 use of IRC 168(k) as of 12/31/2024 …
4. Net adjustment for IRC 168(n) qualified
5. 00 production property depreciation …
6. Gain/loss adjustment on disposition of IRC 168(n) qualified production
7. 00 property …
8. Net depreciation adjustment using
9. 00

IRC 179 as of 12/31/2024 …

1. Gain/loss adjustment for disposition of property, due to Michigan's use of
2. 00

IRC 179 as of 12/31/2024 …

1. Net expense adjustment using
2. 00

IRC 163(j) as of 12/31/2024 …

1. Net expense adjustment using IRC 174
2. 00 as of 12/31/2024
3. Total. Add lines 1 through 8. If the sum is positive, report on Form 5772, line
4. If the sum is negative, report the amount as a positive number on
5. 00

Form 5772, line 19.
Subtractions
Taxpayers must report the following subtractions in completing their return. Report only the amounts from the taxpayer's activity. Do not include amounts from another flow-through entity. See Line 23 for instructions on reporting the taxpayer's share of amounts received from a non-electing entity.
Line 14: Enter, to the extent included in federal taxable income, income from US government obligations (e.g., Series EE bonds, Treasury notes). This amount must be reduced by related expenses used to arrive at federal taxable income.
Line 15: Enter, to the extent included in federal taxable income, guaranteed payments paid for services rendered by a member who is an individual. Do not include guaranteed payments paid to members for the use of capital.

# Line 16: Enter, to the extent included in federal taxable income, the amount of refunds received in the tax based on taxes paid under either the Michigan FTE Tax or the City

Income Tax Act, 1964 PA 284, MCL 141.501 to 141.787.
Line 17: Enter, to the extent included in federal taxable income, gross income from the production of oil and gas subject to the Michigan Severance Tax, 1929 PA 48.

# Line 18: Enter, to the extent included in federal taxable income, gross income derived from a mineral subject to the minerals severance tax under the Nonferrous Metallic Minerals

Severance Tax Act, 2012 PA 410. A "mineral" is defined in Section 2(c) of the Nonferrous Metallic Mineral Extraction Severance Tax Act, MCL 211.782(c).
Line 19: The use of this line is limited to the following scenarios:
Scenario 1: If business income on line 2 of this form is a loss (negative amount) and due to a Michigan addition(s) to income the tax base is ultimately a positive number, report zero on line 2 and use this line to include the loss amount that should have been reported on line 2.
Scenario 2: If the total calculated for Line 11 is a negative.
Tax Liability

Line 23: Enter the total amount of Michigan-sourced income from flow-through entities that have not elected to pay the Michigan FTE Tax for the tax year. Do not include positive business income from flow-through entities that have elected to pay the Michigan FTE Tax for the tax year. The amount reported here must be equal to the total Michigan-sourced income from non-electing flow-through entities reported on Form 5773.
Line 24: If the amount reported on this line is negative, then no tax is owed for this year. The FTE tax does not allow for the carryback or carryforward of losses.
Line 25: The Michigan FTE tax is only levied on the portion of the business income tax base allocable to members who are individuals, fiduciaries (trusts and estates), and other flowthrough entities. Enter the business income tax base allocable to members subject to tax under the CIT (corporations, insurance companies, and financial institutions) so it will be subtracted from the tax base. Credits on this income will not be generated. The amount on line 25 reflects the total of all reported members on Form 5774, Part 1, Column D.
Line 27: MTO will complete the math on this line, which must correspond with the total of Form 5774, Part 2. The amount on this line represents the total tax levied on the filer for the filer's tax year, which may be claimed as credits by the filers' members if paid. However, only the FTE tax paid by the due date of this original return, including extensions, will be eligible to be claimed as a credit for the same tax year.
Flow-through entities must consider this payment date when reporting the proper amount of the credit to its members each year.
Payments, Penalties, and Tax Due
Line 28: Enter the total amount of estimated tax payments made for the tax year. If applicable, include on this line the amount of any payment submitted through MTO as an FTE tax election.
Line 29: Enter the amount of tax paid with a request for extension.
Line 33: Enter the overdue tax penalty. Enter the overdue tax penalty. Use the following "Overdue Tax Penalty" Worksheet.
Annual returns filed late or without sufficient payment of the tax due are subject to a penalty of 5% of the tax due for the first two months. Penalty increases by an additional 5% per month, or fraction thereof, after the second month, to a maximum of 25 percent.

# WORKSHEET - OVERDUE TAX PENALTY

A. Tax Due from Form 5772, Line 31 …
B. Late/extension or insufficient payment penalty percentage
C. Multiply Line A by Line B …
Carry the amount from line C to Form 5772, Line 33.
Line 34: Enter the overdue tax interest. Use the following "Overdue Tax Interest" worksheet. For a list of interest rates, click on "Reports and Legal" on the Treasury website at http:// www.michigan.gov/treasury. Interest rates are updated in Revenue Administrative Bulletins (RABs).

# WORKSHEET - OVERDUE TAX INTEREST

A. Tax Due from Form 5772, Line 31 …
B. Applicable daily interest percentage ...
C. Number of days return was past due ...
D. Multiply Line B by Line C …
E. Multiply Line A by Line D …
Carry the amount from line C to Form 5772, Line 34.
Line 36: Enter the overpayment to be refunded to the taxpayer.
Taxpayers will not be permitted to use this amount as a credit forward to a subsequent tax return.
For More Information
See guidance published on Treasury's website at www. michigan.gov/taxes. A web page, FAQs, and several Notices have been published in relation to this tax.