Pursuant to Chapter 62E of the Massachusetts General Laws, the Commissioner of Revenue ("Commissioner") is authorized to implement and operate a financial institution match system and use it for certain purposes, including the administration of the tax laws and the child support enforcement program of the commonwealth and to verify the financial eligibility of participants in public benefit programs of the Commonwealth. See G.L. c. 62E, § 3. In connection with this grant of authority, the Commissioner may require banks, credit unions, and certain other financial institutions to provide information relating to accounts maintained by such institutions for residents of the Commonwealth and other persons receiving assistance or subject to the tax and child support enforcement laws of the Commonwealth under G.L. chs. 62 and 119A, respectively. See generally, G.L. c. 62E, § 4.
The purpose of this Directive is to update DOR Directive 94-10 with respect to the information required to be provided, and the reporting procedures to be followed by such financial institutions. Specifically, for all reports due on or after April 15, 2009 under the provisions of Chapter 62E, this Directive prescribes new electronic transmission protocols that replace existing outdated magnetic media reporting on tapes and/or cartridges. To the extent that the provisions of this Directive are inconsistent with any prior public written statement or portion thereof, including DOR Directives 97-2 and 94-10, those prior documents are hereby superseded.
Issue 1: Who is subject to information reporting requirements under the Financial Institution Match System in G.L. c. 62E?
Directive 1: The reporting requirements of this directive apply to every financial institution doing business or authorized to do business in the Commonwealth. For purposes of this Directive, the term "financial institution" includes every federal or state commercial or savings bank, including savings and loan associations and cooperative banks, federal or state chartered credit unions; benefit associations; insurance companies, safe deposit companies, any mutual fund, any money-market mutual fund (i.e., every regulated investment company within the meaning of Internal Revenue Code section 851(a) which seeks to maintain a constant net asset value of one dollar in accordance with 17 CFR 270.2a-7), and any entity similar to the foregoing doing business or authorized to do business in the Commonwealth. Additionally, for purposes of this Directive, the term "financial institution" includes any broker, brokerage firm, trust company, and unit investment trust doing business or authorized to do business in the Commonwealth.
Issue 2: What information must be submitted by financial institutions subject to the reporting requirements of this Directive?
Directive 2: Each financial institution subject to the reporting requirements of this Directive must file information reports containing the name, record address, social security number and other identifying data for each person maintaining an account at the institution, in the manner described in Directive 3, below. G.L. c. 62E, § 4. Additionally, the Commissioner may request account balances with respect to interest bearing and non-interest bearing accounts for persons maintaining such accounts at the institution.
For purposes of this Directive, the term "account" includes a demand deposit account, checking or negotiable withdrawal order account, savings account, time deposit account, brokerage account, mutual fund account, money-market mutual fund account, or a life insurance policy with a cash surrender value. G.L. c. 62E, § 4(e).
Issue 3: What procedures must financial institutions follow in submitting the information required under the Financial Institution Match System to the Commissioner?
Directive 3(a): Election of Reporting Methods
All financial institutions subject to the reporting requirements of this Directive must elect one of the two reporting methods indicated in Directive 3(b) and 3(c), below. To do so, each institution must complete and submit an online Bank and Data Matching Application. The affiliation between transmitters and/or custodial agents and financial institutions may be disallowed if the Commissioner is unsatisfied that sufficient safeguards exist to protect the confidentiality of taxpayer information.
While a financial institution continues to have the option to use the "Matched Accounts" method of reporting in lieu of using the "All Accounts" method, the Commissioner encourages such institutions to use the "All Accounts" method set forth in Directive 3(b), below, wherever possible. Regardless of the reporting method chosen, the mechanisms for submitting required information have significantly changed. Beginning with any reports due on or after April 15, 2009, financial institutions must comply with these revised reporting requirements.
Directive 3(b): Method 1: The "All Accounts" method
The "All Accounts" method of reporting allows each institution, at its option, to submit an annual file listing each person maintaining an account at the institution to the Commissioner by April 30 of every calendar year in lieu of utilizing the "Matched Accounts" method described in Directive 3(c). See G.L. c. 62E, § 4(d). This file must provide the name, record address, social security number and other identifying data of every person maintaining an account at the institution. Upon receipt of this file, the Commissioner will match the information against the files of persons receiving financial assistance or whose tax or child support obligations are delinquent, or against the files of any other persons for whom the information is authorized under G.L. c. 62E. The Commissioner will maintain the confidentiality of this information and will use it solely for the purposes authorized therein. Refer to Directive 8, below, for further information.
Each institution electing the "All Accounts" method also must submit a supplemental report within 30 days of the end of each subsequent quarter of every calendar year, identifying the above information for each new account opened during the most recent quarter and each account reported in a prior quarter that has been closed during the most recent quarter.
Directive 3(c): Method 2: The "Matched Accounts" method
The "Matched Accounts" method of reporting requires the Commissioner to provide financial institutions a quarterly, electronic inquiry file ("inquiry file"), requesting information on certain designated persons. Within 30 days of receipt of this inquiry file, each institution must match it against its own records and must furnish the information required in Method 1, above, with respect to all persons identified on the Commissioner's inquiry file. For purposes of this Directive, a "match" must be reported whenever the taxpayer identification number ("TIN") on the Commissioner's inquiry file exactly matches the taxpayer identification number ("TIN") for the owner of an open account on the financial institution's records. The Commissioner may also specify other criteria for reporting a "match".
Issue 4: In what form must the information required by this Directive be submitted?
Directive 4: Regardless of the reporting method used, each institution must submit the required information in a format satisfactory to the Commissioner. G.L. c. 62E, §§ 4(c), (d). Financial Institutions responding to the Commissioner's inquiry under the "Matched Accounts" method must transmit the required information using a secure electronic file transfer protocol in accordance with the specifications set forth by the Commissioner. In unique circumstances, data may be exchanged via Compact Disk (CD) using the latest industry standards encryption methodology by submitting in writing, a request for permission to file on CD. The submission of files on CD is not automatically allowed and the reporting institution must demonstrate good cause for such a request.
Financial Institutions electing the "All Accounts" method may also use the secure electronic file transfer protocol described above or may elect to transmit data by uploading files through the Massachusetts Department of Revenue's secure web application, "Web File for Business."
Issue 5: Under what circumstances will extensions for filing the required information be granted?
Directive 5: Every financial institution subject to the reporting requirements of this Directive may request an extension of time to file the information required by this Directive. Extensions of time are not automatically granted and the reporting institution must demonstrate good cause for requesting the extension. An extension of time for filing the required information may be granted provided that the request for extension is filed with the Commissioner by the date on which the reports are due.
Issue 6: What effect do the Financial Institution Match Program reporting requirements have on the existing requirement to file Form 1099 information returns on an annual basis?
Directive 6: The reporting requirements under the Financial Institution Match Program in G.L. c. 62E are independent of, and in addition to, any other reporting requirements imposed by the tax and child support enforcement laws of Massachusetts. However, for purposes of fulfilling their reporting obligations under the Financial Institution Match System, financial institutions electing the "All Accounts" method of reporting may coordinate their filings required under this program with their Form 1099 filings by following the procedures outlined in Directive 3, above.
Issue 7: What are a financial institution's obligations to protect the confidentiality of information received from the Commissioner under the Financial Institution Match System?
Directive 7(a): General Prohibitions on Disclosure of Information
Except as provided in Directive 7(c), below, financial institutions may not disclose any information contained in an information return or request for information by the Commissioner except to other authorized employees of the institution engaged in complying with the reporting requirements of this Directive or to authorized employees of the Department of Revenue. Employees of the institution may use such information only as required in performing their duties for the Commissioner and may not otherwise copy, reproduce, retain or store any information except as instructed in writing by the Commissioner. Furthermore, electronic media files or other information acquired by institutions from the Commissioner will remain the property of the Department of Revenue and must be returned to the Commissioner at the time the information reports are due, or at any other time designated by the Commissioner.
Directive 7(b): Prohibitions on Disclosure to Depositors or Account Holders
Unless otherwise required by G. L. c. 62E or other applicable law, a financial institution furnishing a report or providing information to the Commissioner is prohibited from disclosing to a depositor or an account holder that the name of such person has been received from or furnished to the Commissioner. However, a financial institution may disclose to its depositors or account holders that under the Financial Institution Match System the Commissioner has the authority to request certain identifying information on certain depositors or account holders. If a financial institution willfully violates the provisions of this section, the institution is liable for the lesser of five thousand dollars or the amount on deposit or in the account of the person to whom such disclosure was made. See G.L. c. 62E, § 14.
A financial institution incurs no obligation or liability to a depositor or account holder or any other person arising from the furnishing of a report or information to the commissioner, or from the failure to disclose to a depositor or account holder that the name of such person was included in a list furnished by the commissioner or in a report furnished by the institution to the commissioner. See G.L. c. 62E, § 14.
Directive 7(c): Limited Disclosure to Custodial Agents of Records
Subject to the following conditions, a financial institution may be authorized to utilize a third party acting as a custodial agent of its records ("custodial agent"), such as a service bureau, for purposes of satisfying these reporting requirements. A custodial agent transmitting data electronically on behalf of financial institutions under the Financial Institution Match Program is subject to the same terms, conditions, and confidentiality provisions that apply to such institutions, as set forth in this Directive.
Issue 8: What are the Commissioner's obligations with respect to information received from financial institutions under the Financial Institution Match System?
Directive 8: The Commissioner must use information collected under the Financial Institution Match System in connection with the Commissioner's responsibilities under G.L. c. 62E: (1) for the purpose of verifying financial eligibility of a participant in an entitlement program of the commonwealth or any political subdivision thereof or their respective agencies, including the director of housing and community development, a local administering agency and a local housing authority, and including, the division of health care finance and policy with respect to payments for free care services made from the uncompensated care pool pursuant to G.L. c. 118G, § 18; (2) for purposes of verifying the eligibility of an employee of the commonwealth or any political subdivision thereof or their respective agencies for workers' compensation benefits; and (3) for purposes of administering the tax laws and the child support enforcement program of the commonwealth.
Unauthorized disclosure of information collected by the Commissioner under the Financial Institution Match System by any employee or agent of the Commonwealth is a violation of G.L. c. 62E, § 8, and is punishable by a fine of $100 per offense. The unauthorized release of information about any individual is a separate offense from information released about any other individual. Any unauthorized release of information by an employee or agent of the Commonwealth is also cause for administrative discipline of such employee or agent.
Issue 9: Are financial institutions subject to any penalties for failure to comply with the information reporting requirements of this Directive?
Directive 9: Any financial institution that is required to submit information reports pursuant to this Directive that fails, without reasonable cause, to comply with these reporting requirements after notification of such failure is liable for a penalty of $5,000 when such failure continues for more than 15 business days after mailing of notification of the failure to comply, without reasonable cause. Similarly, if an institution willfully renders false information in reply to such request, the institution is liable for a penalty or $5,000. G.L. c. 62E, § 9.
For further information on how to comply with this Directive, please visit DOR's website at www.mass.gov/dor.
/s/Navjeet K. Bal
Navjeet K. Bal
Commissioner of Revenue
March 6, 2009