|Organization:||Massachusetts Department of Revenue|
|Referenced Sources:||Massachusetts General Laws|
INTRODUCTION: A non-U.S. business entity can elect its classification for federal tax purposes under the so called "check-the-box" rules provided that it is not treated as a "per se corporation." See Treas. Reg. §§ 301.7701-2(b)(8) and 301.7701-3. Massachusetts follows the federal tax classification of a non-U.S. business entity if the entity is a foreign limited liability company (LLC). See LR 00-5 and LR 00-11. This Directive classifies certain non-U.S. business entities as foreign limited liability companies (LLCs). The application of this Directive is limited to those jurisdictions listed below. However, non-U.S. business entities that are organized in other jurisdictions may seek a Letter Ruling from the Department to determine their tax treatment for Massachusetts purposes. See 830 CMR 62C.3.2.
DIRECTIVE: For Massachusetts tax purposes, the following non-U.S. business entities will be classified as foreign LLCs:
Brazil, Sociedade civil por quotas de responsabilidade limitada
France, Société à Responsibilité Limitée (SARL)
Germany, Gesellschaft mit beschränkter Haftung (GmbH)
Ireland, Private Limited Company
Italy, Società Responsibilità Limitata (SRL)
Japan, Yugen Kaisha (YK)
Netherlands, Besloten vennootschap met berperkte aansprakelijkheid (BV)
Russian Federation, Obschestvos ogranichennoi otvetstvennostyu (OOO)
United Kingdom, Private Limited Company
However, notwithstanding this Directive's classification of these entities as foreign LLCs, if the foreign law creating one of these entities substantially changes, the Department may determine that such foreign entity will no longer be classified as a foreign LLC. In addition, if a foreign entity's charter, by-laws or other organizational documents significantly vary from or its structure or operations are otherwise inconsistent with what is commonly understood within the foreign jurisdiction as defining that type of entity, the Department may determine that that particular entity will not be classified as a foreign LLC.
DISCUSSION OF LAW: Every foreign corporation doing business in Massachusetts is subject to the corporate excise on its own account. See G.L. c. 63, § 39. The term foreign corporation includes "every corporation, association, or organization, established, organized or chartered under laws other than those of the commonwealth, for purposes for which domestic corporations may be organized under [Massachusetts corporations law] which has privileges, powers, rights or immunities not possessed by individuals or partnerships…" G.L. c. 63, § 30.2. In addition, the statute provides that the term 'foreign corporation' "shall apply to a foreign limited liability company as defined in [G.L. c. 156C, § 2], which is not classified as a partnership for federal tax purposes." Id. 
General Laws Chapter 156C, section 2 defines a foreign LLC as "a limited liability company formed under the laws of any state other than the commonwealth or under the laws of any foreign country or other foreign jurisdiction and denominated as such under the laws of such state or foreign country or other foreign jurisdiction."
Through TIR 97-8, the Department announced that, in determining the Massachusetts income tax treatment of LLCs, including foreign LLCs, the Commissioner of Revenue will adopt the business entity's federal income tax classification, as determined under the check-the-box rules. Under these rules, a foreign LLC can elect to be taxed as (i) a corporation subject to tax on its own account (ii) a partnership (if it has two or more members) treated as a flow-through for most tax purposes or (iii) an ignored entity (if it has only one member) treated as a sole proprietorship if the member is a natural person or a corporate division if the member is a corporation. Treas. Reg. § 301.7701-3(a). Additionally, the check-the-box regulations provide a list of foreign entities that are considered "per se" corporations for federal purposes; such entities are not eligible for the check-the-box election. Treas. Reg. § 301.7701-2(b)(8).
Thus, under TIR 97-8, an eligible foreign LLC that chooses to be treated as a partnership for federal tax purposes will also be treated as a Massachusetts partnership if it can be considered a foreign LLC. Likewise, an eligible foreign LLC that chooses to be treated as an ignored entity and therefore disregarded as a separate taxable entity for federal purposes, will also be disregarded under the Massachusetts corporate excise if it can be considered a foreign LLC. See also LR 00-11.
The Chapter 156C, § 2, definition of a foreign LLC set forth above gives a great deal of weight to what the business organization law of another jurisdiction calls an entity. The business entities formed in the non-U.S. jurisdictions listed above meet the requirements of G.L. c. 156C, § 2. Thus, for Massachusetts tax purposes, these entities are to be considered foreign LLCs. As such, the Massachusetts treatment of these entities will follow the federal tax treatment, as provided in TIR 97-8.
LETTER RULINGS: Non-U.S. business entities that are not addressed in this Directive may seek a Letter Ruling from the Department to determine their tax treatment for Massachusetts purposes. See 830 CMR 62C.3.2. As a threshold matter, any non-U.S. business entity appearing on the list of foreign corporations defined as a corporation for federal tax purposes at Treasury Regulation § 301.7701-2(b)(8) will not be classified as a foreign LLC. Attributes of the entity that suggest that the entity is a foreign LLC (but are by no means determinative) include:
- entity name ending with designation limited, ltd., or other foreign equivalent
- entity does not issue shares/certificates of ownership
- limit to the number of shareholders/members of the entity.
EFFECTIVE DATE: The policy announced in this Directive is effective immediately, and is applicable to all open tax periods.
/s/Bernard F. Crowley, Jr.
Bernard F. Crowley, Jr.
Acting Commissioner of Revenue
November 13, 2001