Massachusetts Governor Deval Patrick has signed the state's budget bill for the upcoming 2015 fiscal year.1 The legislation mandates a two-month amnesty program for taxpayers and delays the implementation of the so-called FAS 1092 deduction for a fourth time. The bill also codifies the role of a principal reporting corporation in the context of mandatory combined reporting for corporations and expands the thresholds for the state's small claims tax appeal process.

Tax Amnesty Program

The legislation requires the Commissioner of Revenue to establish a tax amnesty program to allow certain taxpayers to settle outstanding tax liabilities without penalty.3 Specifically, penalties will be waived without any need for the taxpayer to demonstrate reasonable cause or the absence of willful neglect for the failure of the taxpayer to: (i) timely file any proper return for any tax type and for any tax period; (ii) file proper returns which report the full amount of the taxpayer's liability for any tax type and for any tax period; (iii) timely pay any tax liability; or (iv) pay the proper amount of any required estimated payment toward a tax liability.4 However, the Commissioner's authority to waive penalties is limited and does not apply to any taxpayer subject to a tax-related criminal investigation or prosecution or to any taxpayer who delivers or discloses specified fraudulent information.5

While the Commissioner is not specifically limited in the scope of taxes for which amnesty may apply, the legislature has mandated that sales and use taxes, sales taxes on telecommunications services, meals taxes, withholding income, pass-through entity withholdings, room occupancy excises, and gasoline excises, among others, be included under the program.6 The terms of the program do not allow for a waiver or reduction of interest due with respect to the outstanding liabilities.7

Satisfying the terms of the legislation requiring the amnesty program to run for two consecutive months in fiscal year 2015,8 the Department of Revenue has announced that the amnesty program will be available from September 1, 2014 to October 31, 2014. Payments required under the terms of the program must be made on or before October 31, 2014 pursuant to the terms publicized by the Department.9

Under the terms included in the legislation, tax amnesty may be offered to taxpayers who have either an unpaid self-assessed liability or who have been assessed a tax liability, whether before or after the filing of a return.10 However, all information currently available from the Department indicates that only taxpayers directly contacted by the Department regarding assessments may participate. Tax Amnesty Notices including the amounts of tax and interest due are to be mailed to eligible taxpayers in early September.11 Taxpayers contesting tax liabilities through abatement requests and appeals that have resulted in the postponement of taxes, penalties and interest must waive rights to further delay payment of the tax and interest in order to participate in the amnesty program, though administrative appeal rights are not waived by taxpayers participating in the amnesty program.12 Participating taxpayers will be precluded from participation in any future amnesty programs for the next 10 consecutive years.13

FAS 10914 Deduction Delay

Under the new law, the first year of the seven-year period in which to claim the FAS 109 deduction is the combined group's taxable year that begins in 2016.15 Originally included in the legislation which imposed mandatory combined reporting for tax years beginning on or after January 1, 2009, the legislature enacted a special deduction for certain publicly held companies.16 Massachusetts corporate excise taxpayers that experienced an increase in a combined group's net deferred tax liability as a result of the enactment of combined reporting are entitled to a FAS 109 deduction in order to alleviate the potential financial statement impact resulting from the move from separate to combined reporting.17 Originally scheduled to provide benefit over a seven-year period for taxable years beginning in 2012,18 the delay imposed by this legislation is the fourth such delay to the application of this provision.19

Principal Reporting Corporations

The description and duties of the "principal reporting corporation," for purposes of combined reporting for corporate excise tax purposes, previously defined only by regulation, are now codified into law.20

While many of the enacted provisions were previously included via regulation, the new law stipulates that the Commissioner may treat the principal reporting corporation (PRC) as the agent for all corporations required to be included in a combined report.21 Among various administrative allowances, the Commissioner may now issue notices solely to the PRC for all members of the combined report.22 The PRC may extend the time for assessment on behalf of group members23 and is now required to file all notices of change, payments of additional amounts, or applications of abatement on behalf of all group members.24

Small Claims Tax Appeals Process

The new law also expands qualification for the small claims tax appeal process to include disputed tax amounts of up to $25,000 for any taxable year absent a request from the appellant to be heard under formal procedures.25 Previously, the threshold was $5,000.26 The Commissioner may request that certain matters be removed from the small claims procedure if the aggregate value of the impact of the issue on similarly situated taxpayers is at least $250,000 or the Appellate Tax Board determines that the matter is not suitable for small claims resolution due to the complexity or uniqueness of the issue, or other compelling reason.27

Other Provisions

The legislation enacts the following changes:

  • Extends the availability of the historic rehabilitation tax credit until December 31, 2022. The credit for an amount of up to 20 percent of qualified rehabilitation expenditures for a certified rehabilitation project was previously set to expire on December 31, 2017;28
  • Clarifies the computation of the net worth component of the corporate excise tax. For investments in subsidiaries which do not have voting stock, if the book value of the investment represents at least an 80 percent ownership interest by a corporation or qualified real estate investment trust (REIT), the value must be included in the computation. Previously, it was only clear that the book value of investments in subsidiaries representing 80 percent or more of voting stock were includable in this calculation;29
  • Suspends the three-year limitations period for assessment of Massachusetts taxes during the period of time that a taxpayer has a bankruptcy case pending under Chapter 11 of the U.S. Code;30
  • Modifies the defined entities eligible for an existing exemption of specific types of property from property tax to include financial institutions, certain business corporations, and telephone corporations subject to limitations;31
  • Exempts from motor vehicle excise tax vehicles leased by residents who are active and full-time military service members and certain disabled veterans.32 Previously, this exemption was only available with respect to purchased vehicles; and
  • Establishes a committee to conduct a study on the currently-existing "inventory tax," which is defined to include both the tangible property measure and the net worth measure of the non-income portion of the Massachusetts corporate excise tax, as well as personal property taxes levied by municipalities.33

Commentary

While affected taxpayers should consider whether to participate in the tax amnesty program, there are some limitations. Noticeably absent from the list of taxes for which amnesty is available, both in the statute and in the Department's recent announcement, is the state's corporate excise tax. Further, it appears that the amnesty may only apply to taxpayers which have been selected by the Department for unpaid liabilities which have already been assessed. State revenue estimates for the program were based on revenue from a successful 2002 program with entirely different provisions and which included in the list of applicable taxes the corporate excise tax. These limitations may call into question whether the state will receive the revenue that it expects from the upcoming amnesty program.

The delay of the FAS 109 deduction for a fourth time leaves many wondering whether the deduction will ever take effect. The concession for this deduction paved the way for the enactment of mandatory combined reporting in Massachusetts during 2008, as many taxpayers had expressed concern about the financial statement impact of combined reporting to their provisions for income taxes. Now, these same taxpayers must further evaluate for financial statement purposes whether the benefit of the promised deduction will ever be realized.

Footnotes

1 Ch. 165 (H.B. 4001), Laws 2014.

2 Although the provisions of FAS 109 were moved into the Accounting Standards Codification as ASC 740, the legislation and related Department guidance refer to the deduction using this superseded term.

3 H.B. 4001, § 264.

4 H.B. 4001, § 264(a).

5 H.B. 4001, § 264(e)(1).

6 Id.

7 H.B. 4001, § 264(c)(1).

8 H.B. 4001, § 264(b).

9 What You Need to Know About the Tax Amnesty Program, Massachusetts Department of Revenue, July 21, 2014. While the legislation authorized the Commissioner to accept payments until June 30, 2015, administration of the program is completely left up to the Commissioner. For further information on the amnesty program, see the Massachusetts Department of Revenue's Web site at http://www.mass.gov/dor/breaking-news/what-you-need-to-know-about-the-tax-amnesty-program.html.

10 Id.

11 Id.

12 H.B. 4001, § 264(d).

13 H.B. 4001, § 264(g).

14 Although FAS 109 is no longer an operative accounting principle, the legislation and related Department guidance refer to the deduction using this language.

15 H.B. 4001, § 189.

16 Ch. 173 (H.B. 4904), Laws 2008, § 95.

17 Id.

18 Ch. 173 (H.B. 4904), Laws 2008, § 95(2).

19 Previous delays were enacted by Ch. 68 (H.B. 3535), Laws 2011; Ch. 139 (H.B. 4200), Laws 2012; and Ch. 38 (H.B. 3538), Laws 2013.

20 MASS. GEN. LAWS ch. 62C, §§ 1, 11, 11A, 12, 26, 27, 30, 31, 37.

21 MASS. GEN. LAWS ch. 62C, § 11A.

22 Id. Such notices and actions include, without limitation: (i) notices and actions associated with processes such as assessment of tax; (ii) execution of consents to extend the time for assessment of tax; (iii) abatements; (iv) hearing requests; (v) refunds; and (vi) collection activity.

23 MASS. GEN. LAWS ch. 62C, § 27.

24 MASS. GEN. LAWS ch. 62C, § 30.

25 MASS. GEN. LAWS ch. 58A, § 7B(a).

26 Id.

27 MASS. GEN. LAWS ch. 58A, § 7B(c).

28 MASS. GEN. LAWS ch. 62, § 6J.

29 MASS. GEN. LAWS ch. 63, § 30.

30 MASS. GEN. LAWS ch. 62C, § 26(b).

31 MASS. GEN. LAWS ch. 59, § 5, Clause 16th.

32 MASS. GEN. LAWS ch. 60A, § 1.

33 H.B. 4001, § 235.

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