This Technical Information Release ("TIR") explains the estimated tax payment requirements of the participants in a reorganization described in Letter Ruling 99-17. That ruling explained the tax consequences of a transaction in which (i) an existing S corporation transfers its shares to a newly created corporate trust that is a federal S corporation (the "corporate trust parent") and (ii) the corporate trust parent immediately makes a federal election to treat the previously existing S corporation as a qualified S corporation subsidiary ("QSUB").

I. Estimated Tax Payment Requirements of Corporate Trust Parent
Although a corporate trust parent as described in Letter Ruling 99-17 is subject to taxation under General Laws chapter 62, § 8 on the combined income of itself and its QSUB, generally, a corporate trust parent and its QSUB are separate taxpayers. For purposes of the income tax under chapter 62, the corporate trust parent must meet the estimated tax requirements under chapter 62B. Under chapter 62B, § 14, the corporate trust parent's required annual estimated tax payment for the taxable year of the Letter Ruling 99-17 type reorganization is eighty percent of the tax shown on the corporate trust parent's return for the taxable year.

In the year of reorganization, the corporate trust parent, as a newly created taxpayer, cannot rely on the safe harbor applicable to taxpayers that pay estimated taxes equal to or in excess of 100 percent of the tax shown on the prior taxable year's return. (1) A corporate trust parent that does not make the required annual estimated tax payment will be subject to an addition to tax if the tax shown on the return (taking into account applicable credits) equals or exceeds $200. G.L. 62B, § 14(d)(i).

II. Estimated Tax Payment Requirements of QSUB
The QSUB is subject to either (i) the non-income measure of the corporate excise or (ii) the minimum corporate excise imposed under chapter 63 and must meet the corporate estimated tax payment requirements of chapter 63B. See 830 CMR 63B.2.2. In the year of reorganization, the QSUB, because it is not a newly created taxpayer, can rely on the safe harbor applicable to taxpayers that pay estimated taxes equal to or in excess of 100 percent of the tax shown on the prior taxable year's return. G.L. c. 63B, § 3(c)(ii).

III. Application of QSUB's, S Corporation's, and S Corporation's Shareholders' Estimated Tax Payments Against Corporate Trust Parent's Income Tax Liability

A. Twelve Month Taxable Year
For the taxable year in which the Letter Ruling 99-17 type reorganization occurs, the Department of Revenue ("Department") will permit taxpayers who do not close their taxable year for federal tax purposes as a result of the reorganization to apply corporate estimated taxes paid by the S corporation against the income tax liability of the corporate trust parent. Also, the Department will permit such taxpayers to apply corporate estimated taxes paid by or on behalf of the QSUB by the corporate trust parent against the income tax liability of the corporate trust parent. Finally, the Department will permit such taxpayers to apply estimated income taxes paid by the S corporation's shareholders (2) against the income tax liability of the corporate trust parent. See section IV of this TIR.

As used in this TIR, the phrase "corporate estimated taxes" includes the amount of any overpayment from the taxable year prior to the Letter Ruling 99-17 type reorganization that the S corporation, prior to becoming a QSUB, directed to be applied as an estimated tax for the taxable year of the reorganization on the Form 355S-A (Domestic S Corporation Excise Return) or the Form 355S-B (Foreign S Corporation Excise Return) filed for such prior taxable year.

B. Short Taxable Year
For taxpayers who treat a Letter Ruling 99-17 type reorganization in such a way as to require the S corporation to close its taxable year, corporate estimated taxes (3) paid prior to the reorganization by the S corporation will be applied against the corporate excise of the S corporation up to the time at which the S corporation's federal taxable year is closed. The S corporation in this circumstance must file a short-year return using either Form 355S-A or Form 355S-B to report its corporate excise for the short taxable year. Corporate estimated taxes paid by or on behalf of the QSUB by the corporate trust parent after the reorganization, however, may be applied against the income tax liability of the corporate trust parent. See section IV of this TIR.

IV. The Mechanics of Applying Estimated Tax Payments to the Corporate Trust Parent
In order to request that the QSUB's corporate estimated tax payments (and where appropriate, the estimated tax payments of the S corporation or S corporation's shareholders before the S corporation became a QSUB) be applied to the corporate trust parent's income tax liability, a taxpayer initially must contact the Massachusetts Department of Revenue's Customer Service Bureau at either (800) 392-6089 (within Massachusetts) or (617) 887-MDOR. The customer service representative contacted will advise the taxpayer concerning the written requirements needed to adjust and transfer payments to the proper corporate trust account, as well as provide the appropriate mailing address and fax number for submitting the written request. The separate written request must be received prior to the earliest of: 1) the date the corporate trust parent's tax return is filed, 2) the date the QSUB's corporate excise return is filed, or 3) the first date upon which any shareholder files an income tax return.

Frederick A. Laskey,
Commissioner of Revenue

January 22, 2001

TIR 01-3


Footnotes:

1 General Laws, chapter 62B, section 14(c)(ii) allows this safe harbor only if "the taxpayer filed a return for the preceding taxable year and such preceding year was a taxable year of twelve months."

2 Included in this amount is the amount of any overpayment from the taxable year prior to the Letter Ruling 99-17 type reorganization that the S corporation shareholder directed to be applied to the shareholder's estimated tax for the taxable year of the reorganization on the Form 1 (Massachusetts Resident Income Tax Return) or the Form 1-NR/PY (Massachusetts Nonresident/Part-Year Resident Tax Return) filed for such prior taxable year.

3 Included in this amount is the amount of any overpayment from the taxable year prior to the Letter Ruling 99-17 type reorganization that the S corporation directed to be applied to the estimated tax for the taxable year of the reorganization on the Form 355S-A or the Form 355S-B filed for such prior taxable year.