ISSUE: Why do the instructions for the non-resident income tax form (Form 1-NR) indicate that the amount of a non-resident's U.S. total income in Item 2 of the form (for tax year 1986) may not be the same as the amount the taxpayer enters in Item 14(f)?

DISCUSSION: A non-resident taxpayer is required to provide his/her U.S. total income on the Form 1-NR. In addition, the non-resident taxpayer must indicate on the form the sum of his/her Massachusetts total 5% income, 10% income and the additional income that would have been reported as Massachusetts income had the taxpayer been a Massachusetts resident. Due to the differences between Massachusetts and federal tax laws, however, these two amounts may not be the same. For tax year 1986, these differences include:



Differences

Federal Tax Treatment

Mass Tax Treatment

Social Security and Tier 1 Railroad Retirement Benefits

Taxable when income above certain level, I.R.C. § 86.

Exempt, G.L. c. 62, § 2(a)(2)(H).

Contributory retirement plans of the U.S., Massachusetts and other states which do not tax such income from Massachusetts

Taxable after contributions are recovered, I.R.C. § 402.

Exempt, G.L. c. 62, §§ 2(a), 2(E), 3B(4).

U.S. bond interest

Taxable, I.R.C. § 61.

Exempt, G.L. c. 62, § 2(a)(2)(A).

Bond interest from other states

Exempt, I.R.C. § 103.

Taxable, G.L. c. 62, § 2(a)(1)(A).

Foreign earned income

$80,000 exempt, I.R.C. § 911.

Fully taxable, G.L. c. 62, § 2(a)(1)(C).

Income from S corporations

Undistributed income taxable, I.R.C. § 1366.

Actual distributions taxable, G.L. c. 62, § 2(a)(1)(E).

Dividends

1st $100/200 exempt, I.R.C. § 116.

Fully taxable, G.L. c. 62, § 2(a)(1)(B).

IRA distributions

Taxable, I.R.C. § 408(d).

Taxable after contributions are recovered, G.L. c. 62, § 2(a)(2)(F).

Stock dividends reinvested in a qualified public utility

Exempt, I.R.C. § 305(e).

Taxable, G.L. c. 62, § 2(a)(1)(H).

Voluntary 403(b) annuity contributions

Exempt, I.R.C. 403(b).

Taxable, G.L. c. 62, § 2(a)(1)(D).

Long term capital gain deduction

60%, I.R.C. § 1202.

50%, G.L. c. 62, § 2(c)(3).

State tax refunds

Taxable to itemizers, I.R.C. § 111.

Exempt, (no prior deduction under G.L. c. 62, § 2(d)).

Net operating loss carry forward

Deduction allowed, I.R.C. § 172.

Deduction disallowed, G.L. c. 62, § 2(d)(6).

DIRECTIVE: The above differences often result in a discrepancy between a non-resident taxpayer's U.S. total income and the sum of his/her total 5% income, 10% income and the additional income that would have been reported as Massachusetts income had the taxpayer been a Massachusetts resident. Thus, the amount of U.S. total income in Item 2 of the Form 1-NR may not be the same as the amount in Item 14(f).

/s/ Ira A. Jackson
Ira A. Jackson
Commissioner of Revenue

20 August 1986

DOR-D 86-19

This Directive represents the official position of the Department of Revenue on the application of the law to the facts as stated. The Department and its personnel will follow this Directive, and taxpayers may rely upon it, unless it is revoked or modified pursuant to 830 CMR § 62C.01(5)(e). In applying this Directive, however, the effect of subsequent legislation, regulations, court decisions, Directives, and TIRs must be considered, and Department personnel and taxpayers may rely upon this Directive only if the facts, circumstances and issues presented in other cases are substantially the same as those set forth in this Directive.