The federal Technical and Miscellaneous Revenue Act of 1988 ("TAMRA") requires common trust funds to adopt a calendar taxable year for fund years beginning after December 31, 1987. Technical and Miscellaneous Revenue Act of 1988, P.L. 100-647, § 1008(e)(5), 102 Stat. 3342. As a result of the required federal change in taxable year, many common trust funds that currently file Massachusetts returns on a fiscal year basis may decide to adopt a calendar taxable year for Massachusetts tax purposes. This Technical Information Release (TIR) announces the procedure by which a common trust fund affected by TAMRA § 1008(e)(5) may change its Massachusetts taxable year. The TIR also explains how common trust fund participants may adjust the bunching effect on their fund income caused by the change in the fund's taxable year.

CHANGE OF MASSACHUSETTS TAXABLE YEAR

A common trust fund is a fund maintained by a bank for the collective investment of moneys the bank contributes to the fund in its capacity as trustee, executor, administrator, guardian, or custodian of accounts created pursuant to a state act substantially similar to the Uniform Gifts to Minors Act. I.R.C. § 584(a) (1986). A common trust fund qualified under Code section 584 is treated as a partnership for purposes of Massachusetts income taxation. G.L. c. 62, § 17(e).

As a partnership, a common trust fund must file an information return reporting the fund's income for its taxable year. See G.L. c. 62, § 7. The calendar year is the period for which a fund must compute income, unless the Commissioner has granted permission for fiscal year filing. See G.L. c. 62, § 62. Generally, once a fund has adopted a fiscal year, it must continue filing on a fiscal year basis until it obtains the Commissioner's approval to change to a calendar taxable year or a different fiscal taxable year. Id.

Under chapter 62, a taxpayer ordinarily requests permission to change its taxable year by filing DOR Form 13, Notice of Designation of Fiscal Year. A common trust fund required by TAMRA § 1008(e)(5) to change to a calendar taxable year for federal purposes, however, may change to a calendar taxable year for Massachusetts purposes merely by filing the appropriate return for the period beginning on the day after the end of the fund's usual fiscal year and ending on December 31, 1988. At the top of the Massachusetts short taxable year return, the bank filing as a common trust fund should note "Filed in compliance with T.I.R. 89-3." Permission to adopt a calendar taxable year will be deemed requested and granted upon the filing of a short taxable year return with this label. This procedure applies only to the short taxable years of common trust funds ending December 31, 1988.

PARTICIPANTS OF FUNDS CHANGING TAXABLE YEARS

MUST SPREAD SHORT YEAR INCOME; NO WAIVER OF ESTIMATED TAX REQUIREMENTS

A consequence of a common trust fund's change from a fiscal taxable year to a calendar taxable year is that participants in the fund will be required to report in a single taxable year income from the short taxable year of the fund ending December 31, 1988, as well as income from the fund's full fiscal year ending during 1988. See I.R.C. § 584(f). TAMRA provided relief from this problem for federal tax purposes. To the extent a common trust fund participant must include in one taxable year income from more than one fund taxable year, the participant must take into account the income in excess of expenses attributable to the fund's short taxable year ratably over the first four taxable years beginning after December 31, 1987, including the short taxable year ending December 31, 1988. TAMRA § 1008(e)(5)(B), amending Tax Reform Act of 1986, P.L. 99-514, § 806(e)(2), 100 Stat. 2085, 2364.

Similarly, for Massachusetts tax purposes, participants in a common trust fund changing to a calendar year as detailed in this TIR must also use the four-year spread in reporting Massachusetts common trust fund income for the short taxable year. Adopting TAMRA's one time four-year accounting rule is an adjustment preventing the distortion of income that participants would otherwise experience as a result of a fund's change of Massachusetts taxable year. See Technical Information Release 87-13. In general, however, the change of Massachusetts taxable year of a common trust fund does not excuse a fund participant from estimated tax payment requirements. See M.G.L. c. 62B, § 14.

/s/Stephen W. Kidder
Stephen W. Kidder
Commissioner of Revenue


March 23, 1989

TIR 89-3