The federal Tax Reform Act of 1986 requires that all trusts (except trusts exempt from taxation under I.R.C. § 501(a) or a trust described in I.R.C. § 4947(a)(1)) adopt the calendar year as their taxable year for federal tax purposes. Tax Reform Act of 1986 § 1403. Internal Revenue Code (I.R.C.) § 645 (1986). As a result of these federal changes, many trusts that are filing on a fiscal year basis for Massachusetts tax purposes may want to adopt a calendar year.

For Massachusetts tax purposes, trustees are required to make annual returns of their taxable incomes. G.L. c. 62C, § 6(b). Fiduciaries of trusts file Massachusetts Form 2 (Fiduciary Income Tax Return) on a calendar year basis or, if the Commissioner has given advance approval, on a fiscal year basis. Generally, after a trust has adopted a fiscal year, the trust must continue to file on such fiscal year basis until the Commissioner approves a calendar year or different fiscal year.

This Technical Information Release announces the procedure by which trusts affected by I.R.C. § 645 (1986) may change their Massachusetts taxable year, if they so choose. It also explains how trusts affected by I.R.C. § 645 (1986) must make estimated tax payments. This TIR applies only to trusts affected by I.R.C. § 645 (1986). No other taxpayer may rely upon it.

Change of Taxable Year for Massachusetts Purposes

Trusts that must change from fiscal year to calendar year reporting for federal purposes under I.R.C. § 645 (1986) may request permission to file on a calendar year basis for Massachusetts tax purposes. Ordinarily, DOR Form 13 (Notice of Designation of Fiscal Year), is required in order to request permission to change a taxpayer's taxable year. During 1987, however, a trust that is required by I.R.C. § 645 to change its federal taxable year from a fiscal year to a calendar year may request permission to change its Massachusetts taxable year from a fiscal year to a calendar year by filing a Massachusetts Form 2 (Fiduciary Income Tax Return) for the period of time beginning on the day after the end of its usual fiscal year and ending on December 31, 1987.

A trust that:

(1) is required by I.R.C. § 645 (1986) to change its federal taxable year and

(2) files a Massachusetts Form 2 (Fiduciary Income Tax Return) for a short taxable year ending on December 31, 1987 in order to have the same taxable year for federal and state purposes is deemed to have requested permission from the Commissioner to adopt a calendar year as its taxable year by filing the short year return, and permission to file on a calendar year basis is deemed to have been granted upon the filing of the short taxable year return. The trustee should add to the top of the short taxable year return the words, "Filed in compliance with TIR 87-8." The following example illustrates this procedure.

Trust A has adopted a fiscal year that ends on March 31. During 1987, the trust will file a Massachusetts Form 2 for the fiscal year ending March 31, 1987 and a Massachusetts Form 2 for the short taxable year from April 1, 1987 through December 31, 1987. For Massachusetts tax purposes, Trust A will be treated as having requested and received permission from the Commissioner to file on a calendar year basis.

Estimated Tax Payments

Trusts that change their taxable years under this procedure are not relieved of their obligations to make Massachusetts estimated tax payments. All trusts which reasonably expect to receive income taxable under General Laws Chapter 62 and for which the amount of the estimated tax is more than two hundred dollars are required to make estimated tax payments. G.L. c. 62B, § 13. But see generally G.L. c. 62B, § 14(c), (d), (e), (h) (this provision lists the exceptions to the penalty for underpayment of estimated tax).

For the short taxable year ending on December 31, 1987, trustees should continue to make Massachusetts estimated tax payments on the fifteenth day of the fourth month of the short taxable year, on the fifteenth day of the sixth month of the short taxable year, on the fifteenth day of the ninth month of the short taxable year, but the final estimated payment shall be due on January 15, 1988, the fifteenth day of the month following the close of the trust's short taxable year. The Department of Revenue will not require the payments due in the sixth and/or ninth month of the short taxable year to be paid if the short taxable year ends during or before the sixth and/or ninth months.

Trusts will therefore be permitted to make Massachusetts estimated payments on the same due dates allowed for federal estimated payments. See Notice 87-32, 1987-16 I.R.B. 1., which includes a chart that shows the due dates for trusts with short taxable years. The amount of each estimated payment attributable to the short taxable year ending December 31, 1987 shall be the required annual payment, divided by the number of payments made with respect to the short taxable year. The following example illustrates the due dates and amounts of estimated payments for trusts that are changing their taxable years under this procedure.

Trust B has a June 30 fiscal year. Trust B followed the procedures outlined above for changing from a fiscal year to a calendar year. For the taxable year ending on June 30, 1987, its return showed a tax liability of $900. For the short taxable year ending on December 31, 1987, the trust will owe a tax liability of $500. Because the amount of the trust's estimated tax is more than two hundred dollars, for its full taxable year ending on June 30, 1987 the trust made its usual estimated payments on October 15, 1986, December 15, 1986, March 15, 1987, and July 15, 1987. Trust B will then have a short taxable year from July 1, 1987 to December 31, 1987. During this short taxable year, Trust B will make an estimated payment on October 15. Trust B is not required to make an estimated payment on December 15, which is the fifteenth day of the sixth month, because the short taxable year ends during the sixth month, December 31, 1987. Trust B will make its final estimated payment for the short taxable year on January 15, 1988. Each payment should be $250.00 (500 ÷ 2). Beginning January 1, 1988, Trust B will file on a calendar year basis, and its estimated payments for the period ending December 31, 1988 will be due on April 15, 1988, June 15, 1988, September 15, 1988, and January 15, 1989. [1]

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

June 29, 1987

TIR 87-8



[1] Trust B will avoid the penalty for underpayment of estimated tax for the taxable year ending December 31, 1988 if the estimated tax paid is equal to eighty percent of the tax shown on the return for the taxable year ending December 31, 1988. Trust B may not avoid the penalty by making estimated tax payments equal to one hundred percent of the tax shown for the preceding taxable year because the preceding taxable year was not a taxable year of twelve months.