This Technical Information Release (TIR) explains changes contained in chapter 262 of the Acts of 2004, to four chapters of the General Laws: intercept of lottery winnings in chapter 10, certain administrative provisions in chapter 62C, wage reporting provisions in chapter 62E, and insurance payment provisions in chapter 175.
II. Intercept of Lottery Winnings to Pay Past Due Taxes -- changes to chapter 10
Current law requires that the State Lottery Commission check information furnished to it by the Child Support Enforcement (CSE) Division of the Department of Revenue before paying out any lottery prize in excess of $600, and to pay the winnings to CSE to the extent that the winner has outstanding child support obligations. Section 1 of the Act repealed chapter 10, section 28A, and replaced it with a new section. New section 28A extends this treatment to tax obligations, but gives priority in the distribution of claims to the satisfaction of child support obligations.
If the winner owes past-due child support or a past-due tax liability, the Lottery Commission must notify the Commissioner of the winner's name, address and social security number. After statutory state and federal tax withholding, the Commission must first disburse to the Commissioner the full amount of the prize or portion of the prize that satisfies any past-due child support obligation and, if funds remain available after that disbursement, the Commission must disburse to the Commissioner the full amount of the prize or portion of the prize that satisfies any past-due tax liability. The Commission must disburse to the winner only that portion of the prize, if any, remaining after these liabilities have been satisfied.
Effective date: New G.L. c. 10, § 28A is effective December 1, 2004. St. 2004, c. 262, § 71.
III. Changes to Administrative Provisions in chapter 62C
A. Penalty for Dishonored Electronic Funds Transfers
The Act extends the existing penalty under chapter 62C, section 35 for dishonored checks to electronic funds transfers. If an electronic funds transfer is made in payment of a tax, and the transfer fails, the penalty will apply, unless the failure is beyond the reasonable control of the taxpayer. Taxpayers who follow electronic funds transfer guidelines established and publicized by the Department, enter all required information accurately and timely, and ensure both that their bank is capable of carrying out the transaction and that funds are available for payment will not be subject to this penalty. Unforeseeable errors or system failures on the part of a taxpayer's bank or the Commonwealth of Massachusetts or its agents shall not subject taxpayers to the penalty for failed checks or electronic funds transfers. The amount of the penalty is 2% of the amount of the transfer, or if the transfer is less than $1,500, the lesser of $30 or the amount of the payment.
Effective date: The penalty will apply to electronic funds transfers initiated on or after January 1, 2005. St. 2004, c. 262, § 25.
B. Levy on Lottery Winnings and Other Payments not otherwise Exempt
Section 27 of the Act amended chapter 62C, section 53(a) by authorizing the Commissioner to levy on any periodic or lump sum payments from any state or local agency or authority, including unemployment compensation and other benefits not otherwise exempt, judgments, settlements and lottery winnings.
Effective Date: The amendment to G.L. c. 62C, § 53, described above, is effective December 1, 2004. St. 2004, c. 262, § 71.
C. Levy on Certain Mutual Funds
Section 28 of the Act adds new subsection (e) to section 53 of chapter 62C authorizing a person who holds securities or shares of a mutual fund other than a money market fund, with respect to which a levy is outstanding, to sell or repurchase the securities or shares in the ordinary course of investing, but without receiving the proceeds, for a period of up to 45 days. If, at the end of such period, the levy is still outstanding, the person must liquidate sufficient securities or shares to satisfy the related tax lien. For a detailed discussion of general obligations of financial institutions, including brokers, brokerage firms, mutual funds managers, and similar entities served with a notice of levy, see DOR Directive 97-2. To the extent that this new subsection supersedes any portion of that Directive relating to levies on securities or shares of a mutual fund described above, those portions are superseded. See, e.g. Directive 1(b), concerning the 21 day holding period for levied accounts.
Effective date: Newly added G.L. c. 62C, § 53(e) is effective August 9, 2004.
D. Extension of the "Lifetime" of Tax Liens
Prior law generally permitted the Commissioner to collect unpaid tax liabilities for six years after the date of the assessment, after which the debt was discharged whether or not paid. The Act adopts the federal limitations period of ten years, or a longer period if the Commissioner takes action to extend the lien.
2. Statutory change:
The Act amended two provisions of chapter 62C relevant to liens and collection of taxes: G.L. c. 62C, § 50(a), and G.L. c. 62C, § 65.
a. Section 26 of the Act amended chapter 62C, section 50(a) by striking out the last 2 sentences and inserting the following 6 sentences:
The lien shall arise at the time the assessment is made or deemed to be made and shall continue until: (1) the liability for the amount assessed or deemed to be assessed is satisfied; (2) a judgment against the taxpayer arising out of such liability is satisfied; or (3) any such liability or judgment becomes unenforceable by reason of the lapse of time within the meaning of section 6322 of the Code. Notwithstanding section 65, the lien created in favor of the commonwealth for any unpaid tax shall remain in full force and effect for: (i) a period of 10 years after the date of assessment, deemed assessment or self-assessment of the tax; or (ii) for such longer period of time as permitted by section 6322 of the Code, in effect and as amended from time to time, and as construed or interpreted either by the regulations or other authorities promulgated under said section 6322 of the Code by the Internal Revenue Service or by any federal court or United States Tax Court decision. If, by operation of said section 6322 of the Code, a tax lien in favor of the commonwealth would extend beyond its initial or any subsequent 10-year period, the commissioner shall be authorized to refile his notice of lien. If any such refiled lien is filed within the "required refiling period", as that term is defined in section 6323(g)(3) of the Code, the lien in favor of the commonwealth shall relate back to the date of the first such lien filing. Otherwise, any such refiled lien shall be effective from the date of its filing. The commissioner of revenue shall promulgate such rulings and regulations as may be necessary for the implementation of this subsection.
b. Section 29 of the Act amended chapter 62C, section 65 by striking out the first sentence and inserting the following sentence in its place:
Taxes shall be collected: (i) within 6 years after the assessment of the tax; (ii) within any further period after such 6-year period during which the taxes remain unpaid but only against any real or personal property of the taxpayer to which a tax lien has attached and for which a notice of lien has been filed or recorded under section 50 in favor of the commonwealth in accordance with applicable state or federal law within 6 years after the assessment of the tax; (iii) prior to the expiration of any period of collection agreed upon in writing by the commissioner and the taxpayer before the expiration of such 6-year period; or, (iv) if there is a release of levy under section 64 after such 6-year period, then before such release.
Effective dates: The amendments to chapter 62C, section 50(a), and section 65 are effective as of January 1, 2005, and will be applicable to any tax liability, inclusive of penalties, interest, costs, forfeitures, or additions to tax, which remains due and unpaid as of January 1, 2005, or which is assessed on or after January 1, 2005. Any notice of tax lien in favor of the Commonwealth recorded on a date making it less than 6 years old as of January 1, 2005 shall, if not sooner discharged as a result of payment of the tax, continue in full force and effect for a period of 10 years from the date of assessment of the tax without the need for any notice of lien re-filing by the Commissioner.
IV. Changes to Wage Reporting in Chapter 62E
A. Electronic Filing Requirements
Prior to the enactment of chapter 262 of the Acts of 2004 ("Act"), the Commissioner could require wage reports to be made on magnetic media or in other machine readable form for employers or payors of income that were subject to such requirements under section 6011(e) of the Internal Revenue Code. Section 6011(e) required filing in machine-readable format for entities filing at least 250 returns during the calendar year. The Act by section 30 and 31 amends chapter 62E, section 2 by decoupling the Massachusetts filing requirement from the federal requirement, and allowing the Commissioner to require an employer of 50 employees or more, including a governmental entity or a labor organization, or a payor of income to file such returns electronically.
Effective date: Sections 30 and 31 are effective August 9, 2004.
B. Expansion of Financial Institution Information Reporting
In accordance with the requirements set forth in chapter 62E, the Commissioner operates a wage reporting and financial institution match system under which financial institutions share information with respect to accounts with the Department. The Department uses the information in its administration of the tax and child support laws of the Commonwealth, and also shares it with other agencies specified in chapter 62E for purposes of verifying entitlement to benefits. The Act expands the definition of "account" for such purposes to include brokerage and mutual fund accounts, and expands the definition of "financial institution" that must participate in the match system to include mutual funds and brokers. Sections 32, 33 and 34 of the Act amended sections (4) and (5) of chapter 62E by adding language to include the accounts and institutions described above in the financial institution match system. For a detailed discussion of general reporting obligations under chapter 62E, refer to the Department of Revenue Directives 94-10, and 97-2. To the extent that the Act supersedes any portion of those Directives, those portions are superseded.
Effective date: The amendments to chapter 62E, above, are effective August 9, 2004.
V. Intercept of Insurance Payments: Chapter 175
Current law requires insurance companies to check information furnished by the Child Support Enforcement Division before paying certain claims, and to pay the claims to CSE if the beneficiary of the policy has outstanding child support obligations. The Act adds new section 24F to chapter 175 and extends this treatment to tax obligations, but gives priority in the distribution of claims to the satisfaction of child support obligations. Under the new law, subject to the requirements of sections 24D and 24E, which take precedence over this section, insurance companies subject to chapter 175 must, before making any nonrecurring payment equal to or in excess of $500 to a claimant under a contract of insurance, exchange information with the Department of Revenue to ascertain whether that claimant owes child support or taxes to the Commonwealth.
Section 24F sets forth detailed requirements and procedures that insurance companies must follow. In particular, it contains rules pertaining to, among other things, methods of information sharing, remittance of funds, claimants, claim filing, and non-recurring payments. It also contains rules regarding failure to comply with this provision, and use of the information gathered in connection with this provision. Insurance companies should consult the entire provision in detail for further information. The Commissioner will streamline procedures for tax intercepts with procedures that are currently in effect for intercepts involving child support. For further information, insurance companies should consult the section of the Department's website addressing insurance payment intercepts at www.mass.gov/dor.
Effective date: G.L. c. 175, § 24F is effective December 1, 2004. St. 2004, c. 262, § 71.
Commissioner of Revenue
November 1, 2004
Revised March 24, 2006
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