Attached for public and practitioner comment is a draft regulation, 830 CMR 62.6M.1, Community Investment Tax Credit, which explains the calculation of the community investment tax credit allowed for cash contributions to certain community partners or community partnership funds made on or after January 1, 2014.  The cash contributions must be used to support the implementation of the community partner’s community investment plan, a plan that engages local residents and businesses to work together to create community development programs, projects, and activities aimed at improving urban, rural or suburban communities and create and expand economic opportunities for low and moderate income households.  The credit is allowed to both chapter 62 and 63 taxpayers and is codified at G.L. c. 62, § 6M and c. 63, § 38EE.  The credit is refundable but not transferable.  Alternatively, it may be carried forward 5 years.  The credit is due to sunset on December 31, 2019.  Please email any comments you may have on this draft regulation no later than December 16, 2013 to the following address: rulesandregs@dor.state.ma.us


 

WORKING DRAFT FOR PRACTITIONER COMMENT 11/27/13

 

830 CMR: DEPARTMENT OF REVENUE
830 CMR 62.00: INCOME TAX
830 CMR 62.00: is amended by adding the following section:
830 CMR 62.6M.1: Community Investment Tax Credit 
 

(1)     Statement of Purpose, Outline of Topics, Applicable Tax Years
 

         (a)   Statement of Purpose. 830 CMR 62.6M.1 explains the calculation of the community investment tax credit allowed for qualified investments to a community partner or community partnership fund, established by St. 2012, c. 238, §§29, 30, 35, 36, 82, 83, 95, 97, 97A and 98; amended by St. 2013, c. 36, §§ 8 through 15, 58 and 82; and codified at M.G.L. c. 62, § 6M and M.G.L. c. 63, § 38EE.  Regulations issued by the Department of Housing and Community Development (“DHCD”) setting forth the process by which community development corporations and community support organizations may apply to be a community partner and receive a community investment tax allocation and qualified investments from taxpayers may be found at 760 CMR 68.00: Community Investment Grant and Tax Credit Program.
 

         (b)   Outline of Topics.  830 CMR 62.6M.1 is organized as follows:
 

                 (1)  Statement of Purpose, Outline of Topics, Applicable Tax Years

                 (2)  Definitions

                 (3)  Prerequisites to Claiming the Credit

                 (4)  Amount of Credit

                 (5)  Cumulative Cap

                 (6)  Credit is Refundable

                 (7)  Carry Over of Unused Credit

                 (8)  Offset Debt Collection

                 (9)  Special Rules Applicable to Pass-Through Entities

                 (10) Qualified Investments by Married Couples

                 (11) Qualified Investments by Corporations That File a Combined Report

                

         (c)   Applicable Tax Years. The community investment tax credit available under M.G.L. c. 62, § 6M and M.G.L. c. 63, § 38 EE is applicable to tax years beginning, and for qualified investments made, on or after January 1, 2014 through December 31, 2019, or to such time as the Legislature may extend the expiration date of the credit. 
 

(2)     Definitions.  For purposes of 830 CMR 62.6M.1, the following terms have the following meanings, unless the context requires otherwise:


Commissioner, the Commissioner of Revenue or the Commissioner’s duly authorized representative.


Community Development Corporation, a corporation as defined in M.G.L. c. 40H, § 2 and certified as a community development corporation by DHCD. 


Community Investment Tax Allocation, an award provided by DHCD through a competitive process that enables the recipient of the allocation to solicit and receive qualified investments from taxpayers and to provide those taxpayers with a community investment tax credit.


Community Partner, a community development corporation or a community support organization selected by DHCD through a competitive process to receive a community investment tax credit allocation.


Community Partnership Fund, a fund administered by a nonprofit organization selected by DHCD to receive qualified investments from taxpayers for the purpose of allocating such investments to community partners.


Community Support Organization, any nonprofit organization other than a community development corporation or a nonprofit organization selected to administer a community partnership fund that has a track record of providing capacity building services to community development corporations.   


DHCD, the Department of Housing and Community Development.


Qualified Investment, a cash contribution made to a specific community partner to support the implementation of its community investment plan as defined in M.G.L. c. 62, § 6M(b) and c. 63, §38EE (b) or to a community partnership fund.  A community partner may receive qualified investments directly from taxpayers or the community partner may transfer some or all of its community investment tax credit allocation to a community partnership fund and receive qualified investments from that fund.


Taxpayer, any individual or entity that makes a qualified investment and is subject to taxation under M.G.L. c. 62 or M.G.L.  c. 63 and entitled to claim a credit under M.G.L. c. 62, § 6M or M.G.L. c. 63, § 38EE, as applicable.


(3)     Prerequisites to Claiming the Credit.  Before a credit may be claimed, DHCD must certify that the taxpayer made a qualified investment to a community partner or to a community partnership fund and issue a certificate to the taxpayer that establishes that the prerequisites to claiming the credit in 830 CMR 62.6M.1 have been met.  No credit will be allowed unless the certificate number is included in the space provided on the return filed by the taxpayer with the Commissioner for the taxable year in which the credit is claimed or such other validation as the Commissioner may require is provided.


(4)     Amount of Credit. The credit shall be equal to 50 per cent of the total qualified investment made by the taxpayer for the taxable year.  No credit shall be allowed to a taxpayer that makes a qualified investment of less than $1,000.  In any one taxable year, the total amount of the credit that may be claimed by a taxpayer that makes qualified investments shall not exceed $1,000,000.  The credit shall be allowed for the taxable year in which the qualified investment is made.


(5)    Cumulative Cap.  The total cumulative value of all the credits authorized pursuant to M.G.L. c. 62, § 6M and M.G.L. c. 63, § 38EE shall not exceed $3,000,000 in taxable year 2014 and $6,000,000 in each of taxable years 2015 through 2019.  


(6)    Credit is Refundable.  The credit is refundable but not transferable.  The Commissioner will apply the credit against the taxpayer’s liability as reported on the taxpayer’s tax return, as first reduced by any other available credits, and then refund the balance of the credit to the taxpayer without interest. 


(7)     Carry Over of Unused Credit. Alternatively, at the option of the taxpayer, a taxpayer entitled to claim a credit under M.G.L. c. 62, § 6M or M.G.L. c. 63, § 38EE for a taxable year may carry over and apply against the taxpayer’s tax liability for any 1 or more of the succeeding 5 taxable years, the portion, as reduced from year to year, of the credit which exceeds the tax for the taxable year.  If the taxpayer elects to carry over a credit balance, then the credit refund provisions allowed by 830 CMR 62.6M.1(6) shall not apply.  


(8)     Offset Debt Collection. The provisions of M.G.L. chapters 62C and 62D, including without limitation provisions allowing offsets of refunds for unpaid tax assessments, child support obligations, or other applicable obligations apply to refunds and credits under 830 CMR 62.6M.1(6) and (7).


(9)     Special Rules Applicable to Pass-Through Entities.
 

(a)   Pass-Through Entities Not Taxed at Entity Level.  In the case of a qualified investment by a pass-through entity that is not taxable at the entity level, such as a partnership, the credit allowed under M.G.L. c. 62, § 6M or M.G.L. c. 63, § 38EE, as applicable, shall be passed through to the entity’s partners or owners pro rata or pursuant to an executed agreement among the entity’s partners or owners documenting an alternative distribution method without regard to their sharing of other tax or economic attributes of the entity.  The total aggregate amount of the credit passed through by such entity and claimed by its partners or owners in any taxable year shall not exceed the credit amount allowed by 830 CMR 62.6M.1(4).

(b)   Pass-Through Entities Taxed at Entity Level.  A trust or subchapter S corporation subject to tax at the entity level in any year may claim the credit allowed under M.G.L. c. 62, § 6M or M.G.L. c. 63, § 38EE, as applicable, for the taxable year in which the qualified investment was made.  Alternatively, the credit may be passed through to the entity’s beneficiaries or shareholders pro rata or pursuant to an executed agreement among the entity’s beneficiaries or shareholders documenting an alternative distribution method without regard to their sharing of other tax or economic attributes of the entity. These alternatives are mutually exclusive; an entity may not claim part of the credit against its own excise and pass the rest through to its beneficiaries or shareholders.  Either (i) the entity or (ii) the beneficiaries or shareholders may claim the credit, but not both.  If credits are passed through to beneficiaries or shareholders, any credits that cannot be applied in the taxable year for which a carryover is elected may be carried over and applied against the beneficiary’s or shareholder’s tax liability in succeeding taxable years.  Carryovers may not be claimed at the entity level in such cases.  The total aggregate amount of the credit passed through by such entity and claimed by its beneficiaries or shareholders in any taxable year shall not exceed the credit amount allowed by 830 CMR 62.6M.1(4).
 

(10)   Qualified Investments by Married Couples.  In any one taxable year, the total amount of the credit that may be claimed under M.G.L. c. 62, § 6(M) by a married couple who makes qualified investments shall not exceed the credit amount allowed by 830 CMR 62.6M.1(4) and may be claimed only if the spouses file a joint return, if both spouses are required to file Massachusetts income tax returns.  If only one spouse is required to file a Massachusetts income tax return, that spouse may claim the credit on a separate return.


(11)   Qualified Investments By Corporations That File a Combined Report.  In any one taxable year, the total aggregate amount of the credit that may be claimed under M.G.L. c. 63, § 38EE by corporations that make qualified investments and are members of a combined group required to file a combined report under M.G.L. c. 63, § 32B shall not exceed the credit amount allowed by 830 CMR 62.6M.1(4).


 

WORKING DRAFT FOR PRACTITIONER COMMENT 11/27/13