I. Purpose

This Technical Information Release (TIR) announces a new look-back policy that the Department will apply to certain corporations that have failed to file returns due for past taxable periods but that voluntarily disclose past due filing obligations. This new policy applies to business 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] When a taxpayer referenced in this TIR complies with the terms herein, the Department will apply a look-back period that requires tax filings for back tax years commencing with tax years ending on or after January 1, 2001. 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 this or any other look-back period that has been announced in any prior public written statement or form issued by the Commissioner. This TIR supersedes TIR 08-4 and modifies TIR 03-17.

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 TIRs 08-4 and 03-17 regarding time limitation periods applicable to certain taxpayers that fail to file tax returns. TIR 08-4, in particular, applied to taxpayers whose fact patterns were the same as those referenced by this TIR. However, the specific five year limitation period provided for in TIR 08-4 was only applicable to taxpayers who met the requirements as stated in that TIR, including the requirement that the taxpayer filed all past due returns and paid any tax, interest or penalties due by December 31, 2008. Since the time for filing past-due returns under the provisions of TIR 08-4 has expired, the Department is issuing this TIR to provide specific guidance to taxpayers described below, who did not file returns and pay tax due by December 31, 2008, in order that they may resolve their tax and financial reporting obligations.

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

As noted above, this TIR applies to business 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. Pursuant to this TIR, the Department will apply a look-back period in these cases that requires tax filings for all tax years beginning with the tax year ending on or after January 1, 2001, provided that the taxpayer identifies itself to the Department, files its returns and makes full payment of the tax due, including any applicable interest and penalties, within a reasonable period of time that the Department may establish depending on the facts of each case.

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.

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 any previous publicly announced policy regarding look-back periods.

In applying the rules of this TIR, 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.

IV. 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.

V. 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.

VI. Procedure for voluntary disclosure under this TIR

Non-filer corporations that seek to file pursuant to 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:RMH

April 24, 2009

TIR 09-7



[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. See also Geoffrey, Inc. v. Comm'r of Revenue , 453 Mass. 17 (January 8, 2009); Capital One Bank v. Comm'r of Revenue, 453 Mass. 1 (January 8, 2009).