Pass through entities with legal limitations on distributions are not required to withhold for years in which distributions are prohibited under federal or state law. Pass-through entities that are permitted to make distributions to pay taxes must participate in the withholding program in any year in which such distributions are permitted. If distributions to pay taxes are permitted in some years but not others, a pass-through entity must participate in years in which distributions to pay taxes are permitted. A pass-through entity that is permitted to make distributions to pay taxes in a subsequent year based on a prior year's distributive share must comply with the withholding requirements in the year in which distributions are made with respect to the prior year's distributive share (i.e., catching up on the deferred withholding), as well as withholding for the current year on any current year distributive share. For each year it claims to be exempt from the withholding requirement, a pass-through entity must send a letter to the Massachusetts Bureau of Desk Audit stating that it has not withheld because distributions to pay taxes are prohibited under federal or state law for that tax year. Further, for the exemption to be effective, documentation supporting the exemption claim must be retained by the entity, and made available upon request. The letter claiming exemption should be signed by a responsible person; the signature will not be considered valid unless it is accompanied by a statement that the letter is signed under the penalties of perjury. The due date for the letter is the same as the due date for the entity's annual return. The letter should be sent to: Massachusetts Department of Revenue, 200 Arlington Street, Room 4300 - Pass-Through Exemptions, Chelsea, Massachusetts, 02150.
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