The purpose of the TIR is to explain the meaning of the term "federal change" following the decision of the Appellate Tax Board in Smolak v. Commissioner of Revenue, A.T.B. Docket No. 182244 (1995), and the recent codification of that decision in G.L. c. 62C, § 30, as amended by St. 1998, Chapter 485, § 12. In some situations, the expanded meaning of "federal change" will permit taxpayers who have filed an amended federal return decreasing their tax to obtain an abatement of Massachusetts taxes.
When the federal taxable income of a taxpayer subject to either Massachusetts personal income tax, G.L. c. 62, or Massachusetts corporate excise, G.L. c. 63, or the amount of a federal taxable estate subject to Massachusetts estate tax, G.L. c. 65C, is finally determined by the Internal Revenue Service to be different than originally reported, this "federal change" must be reported to the Massachusetts Department of Revenue, accompanied by payment of any additional Massachusetts tax due with interest. G.L. c. 62C, § 30. Also see PMAG, Inc. v. Commissioner of Revenue, 705 N.E. 2d 1130 (1999). If, as the result of a federal change, a taxpayer believes that a lesser Massachusetts tax is due, an abatement application may be filed with the Department of Revenue within one year from the date of notice of a final determination of change by the Internal Revenue Service. G.L. c. 62C, § 30. In some cases, the limitation period for filing an abatement following a federal change will expire later than the general abatement limitation periods contained in G.L. c. 62C, § 37, which are three years from the due date of the tax (without regard to any extensions of time to file), two years from the date the tax was assessed or deemed to be assessed, or one year from the date the tax was paid, whichever is later.
III. The Smolak Decision
Prior to the A.T.B. decision in Smolak, the Department took the position that acceptance of an amended federal return by IRS and subsequent reduction in the federal assessment and refund did not constitute a federal change for purposes of G.L. c. 62C, § 30. In the Department's view at that time, a "federal change" could only result from an IRS initiated audit. Thus, a taxpayer might receive an abatement of federal tax but still be outside of the statute of limitations for filing an abatement in Massachusetts. The Department so argued in the Smolak case, but the A.T.B. decided that the acceptance of the amended federal return and issuance of a notice advising the taxpayer of a decrease in taxable income was a "final determination" of a federal change within the meaning of the Massachusetts statute and the Department's regulation, 830 CMR CMR 62C.30.1. Thus, the taxpayer could file for abatement of Massachusetts tax within the additional limitation period applicable to federal changes. The Department did not appeal the Smolak decision.
IV. The Statutory Change
Chapter 485 of St. 1998, §12, An Act Reforming the Tax Laws of the Commonwealth (the Act), amended G.L. c. 62C, § 30, to add the following to the existing statute: "For purposes of this section, a final determination of a change by the federal government may be initiated by the filing of an amended federal return by the taxpayer." The effect of this amendment is to codify formally the Smolak decision.
V. Effective Date
By the terms of the Act, the statutory change was effective January 1, 1999 and will be applied to all abatement applications considered by the Department on or after that date.
Frederick A. Laskey,
Commissioner of Revenue
September 3, 1999