Income taxable is determined in accordance with the method of accounting regularly employed in keeping the books of the taxpayer unless it is established that such method does not clearly reflect income. If a taxpayer does not keep books of account, his income shall be determined on the cash receipts and disbursements method of accounting. The period for which income is to be computed shall be on the basis of a calendar year unless a taxpayer actually keeps his books of account on the basis of a fiscal year and has obtained permission from the commissioner to report his income on such a basis. A taxpayer must submit Form 13, Notice of Designation of Fiscal Year to obtain permission to report income on the basis of a fiscal year.
Taxpayers determine their taxable income for Massachusetts tax purposes by referring to their federal gross income for the taxable year and they must use the same methods of accounting in Massachusetts as they do federally.
Change in Method of Accounting:
If, during the preceding taxable year, a taxpayer conducted business using one method of accounting for federal tax purposes, and for the current taxable year would like to change its accounting method, the taxpayer must follow one of the following procedures:
- procedure for requesting automatic approval of an accounting method change; or
- standard procedure for requesting an accounting method change under Rev. Proc. 97-27.
Procedure for Requesting Automatic Approval of an Accounting Method Change:
When a taxpayer changes its accounting method for federal tax purposes, it must make a similar change for Massachusetts purposes. However, a taxpayer who changes the method of accounting regularly employed by him in keeping his books is not permitted to report his income on a method different from that used for the preceding year without obtaining the consent of the Commissioner. Taxpayers requesting permission to change their accounting methods for Massachusetts purposes may file their annual returns using the new method of accounting provided they:
- are eligible for an automatic change of accounting method federally; and
- have correctly followed the most recently issued federal revenue procedure for requesting an automatic change.
Taxpayers should write at the top of their tax returns "Automatic Change of Accounting Method - Filed in compliance with DOR Directive 02-13." They should include a copy of federal Form 3115, Application for Change in Accounting Method, together with any required statements attached. Like the IRS, the Commissioner will be deemed to have automatically approved such request.
Standard Procedure for Requesting An Accounting Method Change under Rev. Proc. 97-27:
If taxpayers requesting permission to change their accounting methods for Massachusetts purposes have formally requested permission of the Internal Revenue Service (IRS) National Office to make the change, under the standard (non-automatic) procedures of Rev. Proc. 97-27, then, if the change is approved federally, they should file their Massachusetts returns for the taxable year together with a copy of federal Form 3115, any and all statements required to be filed federally and a copy of the IRS notice of approval for the change in accounting method.
Taxpayers who may apply for automatic approval include individuals, shareholders of S corporations and partners in partnerships, as well as trusts and corporate trusts.
- M.G.L. Chapter 62, Section 62
- DD 02-13: Change in Accounting Methods for Chapter 62 Taxpayers
- Rev. Proc. 97-27
- Rev. Proc. 2002-9, as modified by Rev. Proc. 2002-19