INTRODUCTION

The federal Tax Reform Act of 1986 ("TRA") generally required that partnerships, S corporations, and personal service corporations ("PSCs") adopt the calendar year as their taxable year. See TRA 5 806. Internal Revenue Code ("I.R.C.") 55 441(i), 706(b), 1378 (1986). Massachusetts Technical Information Release 87-13 explained how partnerships, S corporations, and PSCs would change from a fiscal year to a calendar year for Massachusetts purposes. The Revenue Act of 1987 added sections 444, 7519, and 280H to the Internal Revenue Code, allowing certain partnerships, S corporations, and PSCs to elect to use a taxable year different from the otherwise required calendar year ("section 444 election"). But partnerships, S corporations, and PSCs were not permitted to make a section 444 election until sixty days after the publication of temporary regulations in the Federal Register. See Notice 88-10, 1988-5 I.R.B. 24. Massachusetts Technical Information Release 88-3 listed the due dates for Massachusetts returns from partnerships, S corporations, and PSCs that planned to make a section 444 election.

The temporary section 444 regulations, Treas. Reg. § 1.444-1T-3T and § 1.7519-1T (T.D. 8205), were published May 25, 1988, and the federal due date for entities to make a section 444 election is July 26, 1988. See Treas. Reg. § 1.444-1T(d)(1). The purpose of this Technical Information Release is to explain to entities that are changing or retaining their taxable year under the section 444 regulations what procedures they should follow for Massachusetts purposes.

The section 444 regulations set out procedures for partnerships, S corporations, and PSCs in three categories:

1) fiscal year taxpayers that retain their fiscal year;

2) fiscal year taxpayers that will adopt the calendar year; and

3) fiscal year taxpayers that will adopt a different fiscal year.

In addition, the federal regulations explain how taxpayers that already filed returns that will be superseded by a section 444 election should file their section 444 election returns. The following rules explain the Massachusetts procedures.

MASSACHUSETTS RULES ON SECTION 444 ELECTIONS

Under chapter 62, a "`taxable year, shall have the same meaning as in the (Internal Revenue Code], except as otherwise provided in section 62. . . ." G.L. c. 62, § 1(h). Section 62 of chapter 62 provides that Massachusetts income should be computed on a calendar year basis unless the taxpayer actually keeps the books of account on a fiscal year and has obtained the permission of the Commissioner of Revenue to report income on a fiscal year. Chapter 62 taxpayers ordinarily file Department of Revenue Form 13, Notice of Designation of Fiscal Year, to obtain the Commissioner's permission to use a different taxable year. Under chapter 63, a taxable year is "any fiscal or calendar year or period for which the corporation is required to make a return to the federal government." G.L. c. 63, §§ 1; 30, cl. 6; 52A. The Massachusetts Department of Revenue generally requires from chapter 63 taxpayers written notification of any change in taxable year. Technical Information Release 87-13 provided that chapter 62 and chapter 63 taxpayers that filed short taxable year returns according to the instructions of that T.I.R. would be deemed to have been granted the Commissioner's permission to change to a calendar year.

Technical Information Release 88-3 explained the Massachusetts procedures taxpayers should have followed in the wake of section 444 and Notice 88-10. This Technical Information Release, 88-8, should answer questions on changes in taxable year and return due dates that have arisen since the publication of the section 444 regulations.

1) Fiscal year taxpayers that retain their fiscal year

A fiscal year taxpayer that retains the same fiscal year end as its fiscal year beginning after January 1, 1986, should file its Massachusetts return for the taxable year beginning after January 1, 1987, in accord with Rule #2 in T.I.R. 88-3: the Massachusetts return should be filed on the fifteenth day of the third month following the close of the fiscal year, for a chapter 63 taxpayer, and the fifteenth day of the fourth month following the close of the fiscal year, for a chapter 62 taxpayer. The federal return automatic extension does not apply to Massachusetts returns. However, if the taxpayer filed a Massachusetts extension to file, the complete Massachusetts return will be due on or before the fifteenth day of the fourth month following the Massachusetts statutory return due date, for a chapter 62 taxpayer, and on or before the fifteenth day of the sixth month following the Massachusetts statutory return due date, for a chapter 63 taxpayer.

If the taxpayer has not filed a Massachusetts return or a Massachusetts extension to file for its taxable year beginning after January 1, 1987, on or before the Massachusetts statutory due date, and the Massachusetts statutory return due date has already passed, the taxpayer should file a Massachusetts return immediately. If a taxpayer's federal return is due on or after August 15, 1988, the taxpayer, as an alternative, may file a Massachusetts extension to file, but only if the extension is filed within thirty days of the publication of this T.I.R., by September 12, 1988. The taxpayer should add at the top of the extension form, "FILED IN COMPLIANCE WITH TIR 88-8". The extension to file will extend the due date of the return to on or before the fifteenth day of the fourth month following the Massachusetts statutory return due date, for a chapter 62 taxpayer, and on or before the fifteenth day of the sixth month following the Massachusetts statutory return due date, for a chapter 63 taxpayer. But with the return or extension to file the taxpayer should pay eighteen percent interest and the one percent penalty for failure to file, from the Massachusetts statutory return due date to the date of the filing of the return or the extension to file.

If a taxpayer that retains its fiscal year filed an extension under Rule #3 in T.I.R. 88-3, the taxpayer should apply any payments made upon the filing of the Massachusetts extension to the taxpayer's estimated taxes due under chapter 62B or chapter 63B. The taxpayer should indicate the credit for the payment made with the extension on its return and attach a copy of the extension to file and the taxpayer's completed federal Form 8716, "Election to Have a Tax Year Other Than a Required Tax Year."

2) Fiscal year taxpayers that will adopt the calendar year

A fiscal year taxpayer that adopts the calendar year should file its Massachusetts return for the short taxable year ending December 31, 1987, in accord with Massachusetts T.I.R. 87-13 and Rule #1 in T.I.R. 88-3: the Massachusetts return should be filed on March 15, 1988, for a chapter 63 taxpayer, and April 15, 1988, for a chapter 62 taxpayer. The federal return automatic extension does not apply to Massachusetts returns. However, if the taxpayer filed a Massachusetts extension to file, the complete Massachusetts return will be due on or before August 15, 1988, for a chapter 62 taxpayer, and on or before September 15, 1988, for a chapter 63 taxpayer. If a taxpayer has not filed a Massachusetts return or a Massachusetts extension to file by the Massachusetts statutory return due date, the taxpayer should pay with the return eighteen percent interest and the one percent penalty for failure to file, from the Massachusetts statutory return due date to the date of the filing of the return.

When the taxpayer files its complete return, the taxpayer should add at the top of the short taxable year return, "FILED IN COMPLIANCE WITH T.I.R. 87-13." If a taxpayer follows this instruction, the Commissioner's permission to change to the required calendar year will be deemed to be granted. See T.I.R. 87-13 for complete instructions on the short taxable year return.

3) Taxpayers that will adopt a different fiscal year

A fiscal year taxpayer that adopts a different fiscal year or a calendar year taxpayer that adopts a fiscal year must file its, Massachusetts return for the new fiscal year on the fifteenth day of the third month following the close of the new fiscal year, for a chapter 63 taxpayer, and the fifteenth day of the fourth month following the close of the new fiscal year, for a chapter 62 taxpayer. The federal return automatic extension does not apply to Massachusetts returns. However, if the taxpayer filed a Massachusetts extension to file, the complete Massachusetts return will be due on or before the fifteenth day of the fourth month following the Massachusetts statutory return due date, for a chapter 62 taxpayer, and on or before the fifteenth day of the sixth month following the Massachusetts statutory return due date, for a chapter 63 taxpayer.

If the taxpayer has not filed a Massachusetts return or extension to file for any taxable year beginning after December 31, 1986, and the Massachusetts statutory return due date has already passed, the taxpayer should file a Massachusetts return immediately. If a taxpayer's federal return is due on or after August 15, 1988, the taxpayer, as an alternative, may file a Massachusetts extension to file, but only if the extension is filed within thirty days of the publication of this T.I.R., by September 12, 1988. The taxpayer should add at the top of the extension form, "FILED IN COMPLIANCE WITH T.I.R. 88-8". The extension to file will extend the due date of the return to on or before the fifteenth day of the fourth month following the Massachusetts statutory return due date, for a chapter 62 taxpayer, and on or before the fifteenth day of the sixth month following the Massachusetts statutory return due date, for a chapter 63 taxpayer. But with the return or extension to file the taxpayer should pay eighteen percent interest and the one percent penalty for failure to file, from the Massachusetts statutory return due date to the date of the filing of the return or the extension to file.

Within thirty days of the publication of this T.I.R., by September 12, 1988, the taxpayer should send a copy of the taxpayer's completed federal Form 8716 to:

Massachusetts Department of Revenue
Post office Box 7025
Boston, Massachusetts 02204.

This will inform the Department of Revenue what the taxpayer's new fiscal year is. If a taxpayer follows these instructions, the Commissioner's permission to change to a new fiscal year will be deemed to be granted.

4) How taxpayers that already filed returns that will be superseded by a section 444 election should file their section 444 returns

If a taxpayer has already filed a Massachusetts return for its taxable year beginning after December 31, 1986, and later makes a section 444 election that results in a different year end for that taxable year, the taxpayer should file a new Massachusetts return for the new year end, based upon the federal section 444 election. The taxpayer should put at the top of the first page of the new Massachusetts return: "SECTION 444 ELECTION -- SUPERSEDES PRIOR MASSACHUSETTS RETURN." The taxpayer should attach a copy of the superseded Massachusetts return and a copy of the taxpayer's completed federal Form 8716. If a taxpayer follows the instructions outlined above, the Commissioner's permission to change to a different fiscal year will be deemed to be granted.

The federal return automatic extension does not apply to Massachusetts returns, but the Department of Revenue will regard the timely filing of the superseded return as a timely filing of a Massachusetts extension to file. If the amount due on the new Massachusetts return is greater than the amount paid on the filing of the superseded Massachusetts return, the taxpayer must pay eighteen percent interest on the difference between the amount paid and the amount due for the period between the filing of the superseded Massachusetts return and the payment of the new amount due. If the amount paid on the filing of the superseded Massachusetts return is greater than the amount due on the new Massachusetts return, the taxpayer may apply for a refund of the difference by filing Massachusetts Form CA-6, Application for Abatement.

Stephen W. Kidder
Commissioner of Revenue

August 11, 1988

TIR 88-8