Hello Namaste Ji,
Sorry for leaving some important details out. My parents are the taxpayers in this case. They both hold the US citizenship and also have the OCI. I have been using the same CPA for the last 10 years, but my parents went to him for the first time for the 2023 tax return, and he definitely had to do some homework as he doesn't often deal with cases involving sale of overseas properties . CPA claimed foreign tax credit for taxes paid in India on the Federal 1040 and that we believe was done correctly. Our CPA believes that we should not be paying MI taxes on the sale of this residential property in India. He has responded to State of Michigan on our behalf twice.
First response stated "According to current Michigan Tax Law, the real property that was sold in 2023 and included on the adjustment form was from real estate sold in the country of India which is considered a state under Michigan tax law".
Second response stated "The taxpayer claimed a miscellaneous subtraction for income received from India, which is considered a"State" for Michigan income tax purposes. The taxpayer si a 100% Michigan resident. Under Michigan Compiled Laws (MCL) the income tax act of 1967 allows taxpayers a miscellaneous deduction for income from another "State". Under section 206.20(2) the definition of a "State" means any state of the United States and any foreign country. Therefore, the income from India is considered from another state under Michigan Compiled Laws (MCL) and qualifies for the subtraction. We have included a copy of section 206.20 and a statement showing the income was received from India. Please consider the above information and reconsider the disallowance of the miscellaneous subtraction".
State of Michigan's reply - "Your unexplained subtraction on your Michigan Schedule 1 was disallowed". Last reply was the same and they also stated "We did not receive all of the information requested". They are not specifying what information do they want to see from us. I have sent inquiry but no response. It went from being refund as initially calculated to owning money to them.
My questions - 1) does Michigan have treaty with foreign countries (in this case, India) for exclusion of certain foreign earned income? 2) is this case worth fighting for? Are there laws that simply states any / all income regardless where it was originated from MUST be taxed? Any insight would be greatly appreciated.
Jagpreet
