I. Introduction:

Recent legislation, St. 2005, c. 163, § 15, adds a new paragraph to G.L. c. 62C, § 36A. If the Department has made a "payment in error," has demanded return of that payment, and the full amount has not been repaid within 30 days, the amount demanded is considered a tax assessed under G.L. c. 62C. The term "payment in error" includes a refund in excess of the amount properly due or a payment where no refund is due, i.e., an erroneous refund. Thus, an erroneous refund may now be collected like a tax, and the failure to repay an erroneous refund after demand for repayment may now result in the imposition of interest and penalties. The provisions in St. 2005, c. 163, § 15 are effective December 8, 2005, and apply to all failures to repay erroneous refunds or other payments in error after demand for repayment occurring on or after that date. DOR Directive 94-7 is superseded to the extent that it is inconsistent with this TIR.

II. Time Limitations:

A demand for repayment may be made at any time within three years from the date of the payment in error. However, if it appears that all or any part of a payment in error was induced by fraud or misrepresentation of a material fact, a demand for repayment may be made at any time within six years from the date of the payment in error. Misrepresentation of a material fact includes failure to disclose a material fact or to correct the Commissioner's misunderstanding of such a fact.

Since the new statutory language renders any outstanding sums "a tax assessed . . . as of the date of the demand," no interest or penalties for periods prior to the date of demand are imposed. The provisions of G.L. c. 62C, § 65, pertaining to the time for collection of taxes shall apply as of the date of the demand.

Although the provisions of G.L. c. 62C, § 26(b) with respect to the assessment of taxes may be applicable with respect to certain payments, credits or reimbursements noted in Section III of this TIR, the Department may alternatively proceed pursuant to G.L. c. 62C, § 36A to recover payments in error within the time frames noted above.

III. Scope:

The provisions of G.L. c. 62C, § 36A may be used to recover payments in error in situations such as the following, which are by way of example only.

a. Payments in excess of the amount due to a person or payments to the wrong person;

b. Refundable credits, e.g., the earned income credit in G.L. c. 62, § 6(h) and the circuit breaker credit in G.L. c. 62, § 6(k) [1];

c. Transferable credits, e.g., the low-income housing credit in G.L. c. 63, § 31H, the historic rehabilitation credit in G.L. c. 63, § 38R and the film credit in G.L. c. 63, § 38T [2];

d. Bad debt reimbursement pursuant to G.L. c. 64H, § 33 or G.L. c. 64I, § 34; or

e. Job incentive payments pursuant to G.L. c. 62C, § 67D [3].

The new statutory language will not be applied to disputes over contractual payments or child support enforcement obligations.

/s/Alan LeBovidge

Alan LeBovidge

Commissioner of Revenue

AL:MTF:ds

#215007

June 30, 2006

TIR 06-11


[1] If an EIC or CB credit is disallowed or reduced on the basis of information obtained from third parties, the refund claimed may be adjusted prior to payment by Notice of Assessment (NOA) following a 30-day notice to the taxpayer that he or she has filed an "incorrect or insufficient return." If the EIC or CB credit is disallowed or reduced based on "an arithmetic or clerical error or other obvious error apparent on the face of the return" within the meaning of G.L. c. 62C, § 26(c) and 830 CMR 62C.26.1(7), the amount of the refund claimed may likewise be adjusted prior to payment by NOA within the limitation periods of G.L. c. 62C, § 26.

[2] Generally, G.L. c. 62C, § 36A will only be used to recover payments from the original applicant for a transferable credit.

[3] G.L. c. 62C, § 67D authorizes the Commissioner to make a JIP to qualifying biotechnology and medical device manufacturing companies. See TIR 04-19. A qualifying company must submit its JIP request for eligible periods reflecting an increase in employment by at least 10 full-time equivalent jobs and must substantiate its qualification for the JIP in subsequent payment years.