A. Subject

The Department of Revenue is issuing this Technical Information Release (TIR) to announce its modification of TIR 88-10, entitled "Combined Filing under G.L. c. 63, § 32B." In TIR 88-10, the Department determined that taxpayers could take advantage of the relief provided by St. 1988, c. 202, § 31, ("Section 31") only if they had filed combined returns in reliance upon the Department's Letter Ruling 1979-42 before June 9, 1988, for a taxable year ending before December 31, 1988. In addition to the taxpayers permitted to invoke Section 31 under TIR 88-10, however, the Department will permit a taxpayer to file a combined return for any open taxable period ending before December 31, 1988, if: (1) the taxpayer had consistently used the Letter Ruling 1979-42 method in all previous taxable years in which it filed a combined return; (2) before July 26, 1988, the taxpayer either filed a return or obtained a valid extension to file a return; and (3) the taxpayer subsequently filed a combined return within the extended due date(s) using the income combination method stated in Letter Ruling 1979-42.

B. Discussion

In 1988, the Supreme Judicial Court interpreted the combined filing provisions of G.L. c. 63, § 32B, as then amended, in General Electric Company v. Commissioner of Revenue, 402 Mass. 523 (1988). Although the Department had previously instructed affiliated corporations that filed combined returns under § 32B to calculate their "combined net income" under that section by apportioning the income or loss of each individual affiliate to Massachusetts before combining the apportioned amounts, (i.e. the "Letter Ruling 1979-42 method"), the Court concluded that the Letter Ruling 1979-42 method was incorrect, and that the combined net income of affiliated corporations should instead be calculated by first combining the income or loss of the affiliates and only then apportioning the combined amount (i.e. the "General Electric method").

In St. 1988, c. 202, which reinstated the Letter Ruling 1979-42 method for taxable years ending on or after December 31, 1988, the Legislature provided relief from the General Electric decision for those taxpayers who had previously used the Letter Ruling 1979-42 method to calculate combined net income. See St. 1988, c. 202, § 31, which reads as follows:

At the election of the taxpayer, section fifteen shall also apply to all taxable periods for which the taxpayer has filed a return based upon the department of revenue's nineteen hundred and seventy-nine letter ruling No. 1979-42.

In TIR 88-10, the Department concluded that the Section 31 election applied only to taxpayers who filed their returns before June 9, 1988, the date of the General Electric decision. The Department has re-examined TIR 1988-10 with respect to taxpayers who either filed returns for the 1987 calendar year (and certain 1988 fiscal taxable years) before July 26, 1988, the effective date of section 31, or who obtained valid extensions of time before July 26, 1988, for the filing of their returns for these taxable years. If these taxpayers had consistently used the Letter Ruling 1979-42 method in previous taxable years, they may have reasonably relied upon the validity of LR 1979-42 in the manner in which they conducted their business operations before the General Electric decision was announced on June 9, 1988. They should be able to invoke the relief provided in Section 31 even if they filed returns or obtained extensions between that date and the effective date of Section 31.

The discussion of St. 1988, c. 202, § 31 in TIR 88-10 is hereby modified. In addition to the taxpayers who were able to invoke the Section 31 election under the Department's previous interpretation of that statute in TIR 1988-10, the Department will now permit a combined filer to invoke Section 31 for any open taxable period, ending before December 31, 1988, if: (1) the taxpayer had used the letter ruling method consistently in previous taxable years; (2) before July 26, 1988, the taxpayer had either filed a return for the relevant taxable period or had obtained a valid extension for the filing of a return; and (3) the taxpayer in fact filed a combined return, using the income combination method stated in Letter Ruling 1979-42, on or before the extended due date (or in the case of multiple extensions, extended due dates) for the filing of its return.

Mitchell Adams
Commissioner of Revenue

July 19, 1991

TIR 91-4