I. Purpose

This Technical Information Release (TIR) applies to foreign corporations that have failed to file Massachusetts returns for past taxable periods as required by either (1) General Laws chapter 63, section 39, as specified in Directive 96-2, pertaining to the in-state ownership and use of intangible property, or (2) General Laws chapter 63, section 1, creating a presumption regarding taxpayers "engaged in business in the commonwealth," because of in-state lending and ancillary loan activity. [1] This TIR modifies TIR 03-17 and the application of the Department's non-filer "look-back" policy in these cases. When a taxpayer referenced in this TIR complies with the terms herein, the Department will apply a five year look-back period, requiring tax filings for back tax years commencing with tax years ending on or after January 1, 2003. If the taxpayer does not comply, the Department will apply a look-back period that is appropriate to the circumstances and will not be bound by the general three or seven-year look-back periods that were announced in TIR 03-17. The Department is issuing this TIR in response to requests by taxpayers for guidance in order that, inter alia, they may proceed to resolve their tax and financial reporting obligations.

II. Background

When a taxpayer fails to file a required tax return, the Commissioner may make an assessment of tax at any time, without giving notice of her intention to assess for any taxable period for which a return was due. See G.L. c. 62C, § 26(d). The statute does not limit the number of past due returns or past tax periods for which the Commissioner may assess tax. See, e.g., Commissioner of Revenue v. Jafra Cosmetics, Inc., 431 Mass. 684 (2000). However, in any instance involving a failure to file, the Commissioner generally seeks to balance considerations of taxpayer compliance and appropriate agency resource allocation. In keeping with these general considerations, the Commissioner previously issued TIR 03-17 regarding time limitation periods applicable to certain taxpayers that fail to file tax returns. That TIR provides general guidance, describing several general "look-back rules" subject to exceptions. As noted below, TIR 03-17 states a general seven-year look-back rule, and also a special three-year look-back rule for certain voluntary disclosure cases of non-resident taxpayers and foreign corporations that, among other things, did not conduct an extensive level of business activity in Massachusetts as would remove any reasonable doubt as to a filing obligation. This TIR is directed at certain specific fact patterns, and provides the look-back rules that the Department will generally apply in such cases. In these specific fact patterns, this TIR modifies the application of TIR 03-17.

III. TIR 03-17; the Department's general "look-back" policy

TIR 03-17 states as a general rule, subject to certain exceptions, that when the Commissioner determines that a taxpayer has failed to file tax returns that were required, the Commissioner will assess the taxpayer with respect to returns due during the most recent seven years. However, to encourage voluntary compliance, TIR 03-17 also states that the Department, subject to certain exceptions, will limit assessments to the three most recent tax years in cases where certain categories of non-filers, including foreign corporations, voluntarily disclose their non-filing.

TIR 03-17 states that in cases in which a taxpayer seeks to apply the Department's three-year look-back policy, the Department will nonetheless apply the seven-year policy, notwithstanding any voluntary disclosure, when an extensive level of business activity conducted in this state removes any reasonable doubt as to the taxpayer's prior filing obligation. Further, TIR 03-17 states that its discretionary policy is subject to exceptions based on consideration of particular facts and circumstances, in which cases the Department may require additional returns to be filed going back in excess of seven years, or returns for less than seven years. Factors to be considered to determine whether an exception applies include whether there is (1) any basis for any reasonable doubt on the part of the taxpayer as to its filing obligation and (2) willful neglect on the part of the taxpayer to file returns despite reasonable cause to know of a filing responsibility. [2]

IV. Fact patterns covered by this TIR; requirements and rules for filings

As noted above, this TIR applies to foreign corporations that have failed to file returns due for past taxable periods as required by either (1) General Laws chapter 63, section 39, as further specified in Directive 96-2, pertaining to the in-state ownership and use of intangible property, or (2) General Laws chapter 63, section 1, creating a presumption regarding taxpayers "engaged in business in the commonwealth," because of in-state lending and ancillary loan activity. In these cases, the state's prior notice as to the taxpayer's filing responsibility based on the authorities described above has been clear and therefore the Department will not apply the three-year look-back period specified in TIR 03-17 for non-filers seeking to make use of the Department's voluntary disclosure policy. See also Geoffrey, Inc. v. Comm'r of Revenue, A.T.B. Docket No. C271816, 2007 Mass.Tax LEXIS 46 (July 24, 2007), and Capital One Bank v. Comm'r of Revenue, A.T.B. Docket Nos. C262391 and 262598, 2007 Mass. Tax LEXIS 25 (June 22, 2007), confirming these positions. [3] Pursuant to this TIR, the Department will apply a five-year look-back period in these cases, requiring tax filings for the tax years beginning with the tax year ending after January 1, 2003, if the taxpayer identifies itself to the Department as seeking to apply the terms of this TIR by September 30, 2008 and files its returns and makes full payment of the tax due and applicable interest and penalties by December 31, 2008.

The provisions of this TIR shall only apply when the taxpayer's filings are made in good faith in accordance with all applicable tax rules, including the pertinent corporate apportionment rules and all other applicable rules as stated in the Department's public written statements. Subsequent to the time of a filing made hereunder the taxpayer will have the opportunity to file an abatement claim under the generally-applicable procedures. Thus, in the event that the final decisions in the Geoffrey and Capital One cases diverge from the analysis in this TIR, a taxpayer will be able to have any such differences taken into account as long as its abatement is filed within the time frames prescribed in G.L. c. 63, § 37. Similarly, any such filings will remain subject to further review and assessment by the Department under the generally-applicable procedures.

In the case of any taxpayer that is within the scope of this TIR but does not file hereunder, the Department will apply a look-back period that is appropriate to the circumstances and will not be bound by the look-back periods set forth in TIR 03-17.

In applying these look-back periods, the administrative rules and procedures of TIR 03-17 shall be utilized. This TIR shall not apply to any taxpayer that previously entered into a voluntary disclosure agreement with the Commissioner or to any taxpayer for which the filing issue was specifically addressed as part of a case settlement with the Department.

V. Certain cases where expense deduction denied to a taxpayer's affiliate

In some cases the non-filing corporation seeking to file pursuant to this TIR may have received licensing fees, as referenced in Directive 96-2, from an in-state corporate affiliate (i.e., a corporate affiliate that filed a return in Massachusetts). In these cases, the Department will allow the taxpayer to propose appropriate adjustments, where applicable, to take into account circumstances where the affiliate corporation was denied an expense deduction in whole or part for such licensing fees and thereby avoid double taxation of such fees. See 830 CMR 63.31.1(10). Any such proposals shall be clearly demonstrated, to the satisfaction of the Commissioner, who may require that the taxpayer provide specific schedules or other additional information or documentation.

VI. Penalties

In general, penalties are imposed whenever a tax return is filed late and whenever a tax is paid late. G.L. c. 62C, § 33. The Commissioner has authority to waive these late filing or payment penalties under certain circumstances. G.L. c. 62C, § 33(l). The Commissioner may waive such penalties when a taxpayer demonstrates that the failure to file or pay resulted from reasonable cause and not willful neglect. See Administrative Procedure 633: Guidelines for the Waiver and Abatement of Penalties. However, the Commissioner will generally not waive penalties in the cases to which this TIR applies for tax years in which the non-filing corporation was a financial institution that is engaged in business in the Commonwealth under the standards of General Laws chapter 63, section 1 or alternatively received licensing fees, as referenced in Directive 96-2, from an in-state corporate affiliate. See Geoffrey, Inc., supra.

VII. Procedure for voluntary disclosure under this TIR

Non-filer corporations that seek to apply the look-back rules as set forth in this TIR can voluntarily disclose their non-filing of tax returns by contacting the Department's Voluntary Disclosure Unit. The initial contact should be a letter from the taxpayer or the taxpayer's representative naming the taxpayer, giving a brief general description of the taxpayer's activities and stating the proposed application of the Department's reporting rules. The Voluntary Disclosure Unit can be contacted either in writing or by phone as follows:

Massachusetts Department of Revenue
Voluntary Disclosure Unit
200 Arlington Street, Room 4300
Chelsea, MA 02150

PHONE: (617) 887-6725
FAX : (617) 887-6792

/s/Navjeet K. Bal
Navjeet K. Bal
Commissioner of Revenue

NKB:MTF

March 24, 2008

TIR 08-4



[1] Directive 96-2 was issued on July 3, 1996 and states that "[t]he principles set forth in this directive will apply to taxable years beginning on or after January 1, 1996." General Laws c. 63, § 1 was enacted as part of the financial institutions excise tax, St. 1995, c. 81, which was approved July 27, 1995, and made effective for taxable years beginning on or after January 1, 1995.

[2] TIR 03-17 also referenced as additional factors the cost to the Commissioner to secure the tax revenue through means other than voluntary disclosure, the degree of flagrancy and history of the taxpayer's noncompliance, and special circumstances peculiar to the specific taxpayer or peculiar to the taxpayer's business or industry.

[3] These cases are currently on appeal to the Supreme Judicial Court.