STATE AND FEDERAL TAX REPRESENTATION
On this page I have listed the recent changes and items of interest that
did not make the top ten list. Some are not as current but remain
important. The following items are on this list today:
a) 830 CMR 63.30.3: Entity Classification under St. 2008, c.
173 “Check the Box” TIR 08-03
DOR now conforms to the election made federally as to how an entity should be taxed. This election commonly referred to as “Check the Box” is not a separate election however you have elected to be taxed federally is how you will be taxed in Massachusetts
In certain circumstances this change does have a Massachusetts tax effect on certain income items, see the regulations for specifics. b) Combined Reporting 830 CMR 63.32B.2
Massachusetts has enacted a law which will require combined reporting for members of what is referred to as “A Unitary Group”. Expected to bring in as much as $400 Million in new revenue, the law is effective for tax years beginning on or after 1/1/09. The regulation is in its final form, a lengthy document, it answers many questions although many still remain in this complicated area. A critical item is the DOR says you MUST E-File this return. They say if
you file paper they will destroy it and treat the taxpayer as a Non-Filer.
* Other Jurisdiction Credits Chapter 62, Section 6 (a)
There have been three rulings in 2008 regarding Other Jurisdiction Credits, an unusually large number of rulings on the subject:
a) DD 08-06 Dealing with the credit for taxes paid by a flow thru entity at the entity level. The directive indicates that it is generally allowed as a credit to the resident shareholder or partner as long as the tax is an income tax. Other issues may apply (see the Directive)
b) DD 08-07 Deals with “Gross Receipts Taxes” imposed by other jurisdictions indicating that they are not eligible for the credit as they are not income taxes
c) LR 08-11 Explains how the credit works in the case of an individual domiciled in New York, but treated as a statutory resident of Massachusetts
•Directive 08-03 Massachusetts Income Tax treatment of contributions
on behalf of Partners and other self employed individuals under a
401 (k) plan
• Letter Ruling 09-05 Residency for Purposes of the 183 Day Rule
A graduate student on a J1-student visa, pursuing a 5-year doctoral degree was determined not to have a “Permanent Place of Abode” and thus was a non-resident, even though the student was in Massachusetts for more than 183 days. The student was currently renting a university-owned studio apartment,consisting of one room plus a bathroom and kitchen, located one block away from the main campus. The student pays rent for this apartment on a one-year lease through his term bill. This studio apartment is available only to affiliated student/faculty/ staff and is not open for rent to the general public. The DOR found that the studio apartment was closer in type to a dormitory room or suite than to an off-campus apartment without university affiliation that was open to the general public.
• The Madoff Situation
DOR has ruled that regardless of the way these losses were treated Federally, the qualify as capital losses in Massachusetts. Given the differences between Mass and Federal law this is the most favorable treatment that Mass could give absent a law change.
* The Nancy Gill Case The Federal District Court has recently decided that the "DOMA" act is unconstitutional. This means for tax purposes that same sex marrages must be recognized by the Federal Government and that they can file Married Filing Joint. It is not just a tax case but encompasses all the areas that DOMA applies to. It is likely that it will be appealed. My small role in this is that I prepared many of the amended tax returns used in the case
* The answer to a recent question posed to me concerning Unitary, specifically "Fiscalization" Several people have asked questions about the “Fiscalization” rules provided in the combined reporting regulation. Here is a recent question that I received and the DOR’s answer to it. Here is the fact pattern presented:
- Seven S corps all owned by the same individual with majority
ownership and in a unitary business; six of the entities have fiscal years ending September 30 and one ending December 31. All do business entirely in Massachusetts. All have reported the income measure of the excise tax on their separate tax returns ended in 2008 and all six September 30 entities have filed September 30, 2009 in the same manner. For tax years beginning after January 1, 2009, the Principal Reporting Corporation will be one of the September 30 entities. The question is what to do with the December 31, 2009 tax return for that one entity. 1) The December corporation is subject to 32B combined reporting for its taxable year begining January 1, 2009. 2) Unless there is a federal consolidated return being filed, the combined group's taxable year will be the taxable year of the principal reporting corporation, which in this case ends on September 30th. 3) The first taxable year for the group will be from January 1, 2009 to September 30, 2009. The second taxable year for the group will begin on October 1, 2009 and is expected to end on September 30, 2010. 4) For the 1st taxable year, the income of members with an October 1, 2008 - September 30, 2009 taxable year is excluded (That income is reported and taxed on their returns filed under the old rules.) On the facts given,the only member actually contributing income and factors to this 1st combined report will be the December corporation and its income shown on the return is its income for the 1st 9 months of 2009. 5) The corporations with September 30th year ends file their 09/30/2009 returns under the old rules (as they have done). 6) The group files a 355U for the September 30th year end and the PRC name and taxpayer ID# should be used for this. 7) The December corporation files a 355 or 355S (as applicable) to pay its non-income measure of excise for its 12/31/2009 taxable year when that return is normally due. That return does not report any income or expenses that are part of the unitary business. 8) When the return is filed for the group's second taxable year (09/30/2010), the December corporation will include the income from the last three months of 2009 and the 1st nine months of 2010 on that form 355U under the fiscalization rules. So to paraphrase: they are saying that the December corp. is subject to the combined report from January 1 to September 1st (BY ITSELF) so a 355U return is due for the nine months and a regular 355 is due on it's regular due date. In all future years the group will file a 355U for the September period with the December corp. showing the last three months of 2009 and the first 9 months of 2010.