PETITION OF:

SECTION 1. The Legislature finds and declares all of the following:

(a) Massachusetts has recently witnessed a trend of corporations that manipulate accounting rules and principles resulting in overstated earnings. The impact on consumers or investors is inflated stock prices, ultimately leading to investors that lose significant portions of their investments, which is especially harmful when the lost investments represent retirement savings.

(b) As noted by federal tax authorities, there has been a growing trend of corporations that invest in, or create, abusive tax shelters through schemes and manipulation of tax accounting rules that result in understated income to tax authorities.

(c) Studies have demonstrated a growing gap between taxable income and reported book income, a gap that may generate significant revenue losses to the state and that appears to result from the growing use of tax shelters. Further studies have shown that a growing tax gap is indicative of accounting manipulations that end up hurting investors.

(d) Markets are impaired when corporations gain competitive advantage through manipulation of tax accounting instead of their relative efficiency and innovative practices.

(e) Consumer and investor confidence falls with the decline of corporate accountability. Additional protection for consumers against improperly inflated stock prices and protection for the citizens of Massachusetts against improperly reduced taxation may be achieved by making certain corporations disclose the differences between the income reported for tax purposes and the income used to publicize earnings for financial, or Wall Street, purposes.

(f) Recently, the Internal Revenue Service instituted a program to require corporations to complete, as part of the corporation tax return, a comprehensive schedule that reconciles the difference between financial income (book income) and taxable income reported on its tax return. That expansive schedule is required if the corporation, or the affiliated group of which the corporation is a member, reflects total assets of at least $10 million.

SEC. 2. to be added to the Massachusetts General Law, to read:

(a) Any corporation subject to the Commonwealth’s corporate income tax including those that pay the minimum tax, shall file an information return providing the information described in subdivision (b) if the total assets of the corporation or the affiliated corporate group equal or exceed ten million dollars ($10,000,000) as of the end of the taxable year.

(b) The information return required by this section shall consist of a reconciliation of financial statement net income (loss) to the net income (loss) reported on the tax return required by the Internal Revenue Service. To translate this information for the state of Massachusetts, the filing corporation shall also provide information explaining the following:

(1) Whether the boundaries of the corporate entity under federal tax law differ from those defined under Massachusetts law due to different ownership thresholds for subsidiaries or other reasons.

(2) The apportionment of the corporation and its affiliated partners’ income to other states, based on sales, property, and payroll factors. This report shall include income which may not have been apportioned to any state.

(c) Any corporation that fails to furnish the information required under subdivision (a) shall pay a penalty of fifty thousand dollars ($50,000) for each failure.

(d) Any corporation that files a false or incomplete information return required by subdivision (a) shall pay a penalty of fifty thousand dollars ($50,000).

(e) The Department of Revenue may rescind all or any portion of any penalty imposed under subdivision (d) if both of the following apply:

(1) Imposing the penalty would be against equity and good conscience.

(2) Rescinding the penalty would promote compliance with the requirements of effective tax administration.

(f) Notwithstanding any other law or rule of law, any determination under this subdivision shall not be reviewed in any administrative or judicial proceeding.

(g) The penalties imposed under subdivisions (c) and (d) are cumulative and the imposition of one penalty shall not be construed as a restriction on the imposition of the other penalty.

(h) Each penalty imposed under subdivisions (c) and (d) shall be in addition to any other penalty provided by law.

(i) The Department of Revenue shall report to the Legislature, on or before December 1, 2009 and then every second year with respect to the level of compliance and a discussion of the value of book-tax gap information with respect to increasing accuracy in book income reported and identifying participation of tax shelter activities. The report shall describe the incidence of major tax sheltering activities by corporations with business activity in Massachusetts. It will also describe the extent to which relative size of the book-tax gap is related to corporate size, broad industrial group, and future book income. No individual corporations will be identified in these reports. Based on findings, the reports should describe possible legislative and administrative measures that would likely increase compliance with the law with respect to manipulation of tax and book income to inflate financial statements or avoid taxation.

(j) The Department of Revenue may prescribe any regulations as may be necessary or appropriate to carry out the purposes of this section.