The Michigan Department of Treasury (Treasury) is busy auditing Single Business Tax (SBT) returns and will continue to do so until the four year statutory period for audits has expired.  One of the issues that has continually appeared on SBT audits is the computation of cash basis wages for the compensation addback.  The law specifies that "payments made" to employees, officers and others is added back.  The term "payments made" means on the cash basis; even if the taxpayer reports income on the accrual basis.

In the past, Treasury has allowed the taxpayer to report on either the cash basis or the accrual basis as long as the taxpayer was consistent.  However, in recent audits, the auditors have stuck to the cash basis.  Furthermore, they have computed the addback based on the cash wages paid from the Form 941, Form 940 or from the accrual to cash reconciliation; whichever is higher.

The taxpayer does not have to accept the auditors determination.  The taxpayer should do a reconciliation of cash wages paid as reported on the Form 941, the Form 940 and prove it against the accrual to cash reconciliation.  After identifying the differences, the taxpayer should only agree to the actual cash payment of wages.  This is what the law requires.