| Date: | 04/06/2007 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Personal Income Tax
Introduction: Pursuant to section 14 of chapter 262 of the Acts of 2004, section 10(g) of chapter 62 was amended to require trustees and other fiduciaries having control of payments to nonresidents of the Commonwealth, who are beneficiaries receiving income taxable at the beneficiary level under G.L. c. 62, §§5A and 10(h), to "deduct and withhold" from such income a tax at the appropriate rate. This is contrary to the instructions in TIR 04-23, the 2006 instructions to Form 2, Fiduciary Income Tax Return, and the 2006 and 2007 instructions to Form 1-ES, Estimated Tax Payment, and Form 2-ES, Massachusetts Estimated Income Tax for Filers of Forms 2, 3F and 3M, which generally directed nonresident beneficiaries to make their own estimated tax payments . As a result, confusion has arisen as to how to report such payments on 2006 tax returns and the 2006 Schedule 2K-1, Beneficiary's Massachusetts Information. Additionally, confusion has arisen as to how such payments are to be paid over to the Commonwealth on Forms 1-ES and 2-ES and reported on tax returns and the Schedule 2K-1 going forward. This Directive is being released to provide guidance as to these issues.
Issue 1: Estimated Tax Payments Made by Beneficiaries in 2006. Given that many trustees and other fiduciaries did not make the payments required under § 10(g) on behalf of nonresident beneficiaries referenced above in 2006, since nonresident beneficiaries were instructed to make their own estimated tax payments, how should estimated tax payments made by beneficiaries in 2006 be reported on 2006 tax returns and the 2006 Schedule 2K-1?
Directive 1: Nonresident Individual Beneficiaries. Estimated tax payments for 2006 made by a nonresident individual beneficiary should be reported on the "Massachusetts estimated tax payments" line of his or her 2006 Form 1NR/PY.
Nonresident Entity Beneficiaries. Estimated tax payments for 2006 made by a nonresident entity beneficiary that file a Form 2, Form 3F, Form 3M, for example ( i.e. a trust, corporate trust, or other entity) should be reported on the "Massachusetts estimated tax payments" line of its 2006 return.
A trustee or other fiduciary should not include 2006 estimated tax payments made by a nonresident individual or entity beneficiary on the 2006 Schedule 2K-1 he or she prepares for the nonresident beneficiary or on the 2006 Form 2 he or she prepares for the trust or estate of which the nonresident individual or entity is a beneficiary.
Issue 2: Payments Made for 2006 by Trustees or Other Fiduciaries. In the event that a trustee or other fiduciary "deducted and withheld" tax payments required by G.L. c. 62, §10(g) on behalf of a nonresident individual or entity beneficiary in 2006, how should these payments be reported on 2006 tax returns and the 2006 Schedule 2K-1?
Directive 2: Payments Made on Form 1-ES Under Beneficiary's Identification Number to be Treated as Estimated Tax Payments. In theevent a trustee or other fiduciary "deducted and withheld" tax payments on behalf of a nonresident beneficiary in 2006 by using Form 1-ES and making payments under the beneficiary's identification number, not the employer identification number of the trust or estate of which the nonresident is a beneficiary, then the sum of those payments should be reported on the 2006 Schedule 2K-1 prepared for the beneficiary. An unused line on the Schedule will need to be used for this purpose. The preprinted language will need to be struck and the following language added: "Estimated tax payments made on behalf of nonresident beneficiary by Fiduciary." As a result, the 2006 Schedule 2K-1 will not be able to be completed electronically. Additionally, the payments should be reported by nonresident beneficiaries on their 2006 income tax returns, as noted in Directive 1 above. Finally, payments should not be reported on the 2006 Form 2 of the trust or estate of which the nonresident is a beneficiary.
Payments Made on Form 2-ES Under Trust's or Estate's Employer Identification Number, Not Beneficiary's Identification Number, to be Treated as Estimated Tax Payments as Well. Tax payments "deducted and withheld" on behalf of a nonresident beneficiary by a trustee or other fiduciaryin 2006 by using Form 2-ES and making payments under the employer identification number of the trust or estate of which the nonresident is a beneficiary are to be reported on the 2006 Schedule 2K-1 prepared for the beneficiary and on the beneficiary's income tax return as noted directly above. Payments should not be reported on the 2006 Form 2 of the trust or estate of which the nonresident is a beneficiary.
Issue 3: How are the payments required to be "deducted and withheld" under G.L. c. 62, § 10(g) on behalf of a nonresident individual beneficiary who receives income taxable at the beneficiary level under G.L. c. 62, §§ 5A and 10(h) to be reported to the Commonwealth going forward?
Directive 3: Going Forward - Payments Made by Trustees or Other Fiduciaries on Form 1-ES to be Treated as Estimated Tax Payments. For taxable years beginning on or after January 1, 2007, the amount "deducted and withheld" as tax is to be reported and paid by the trustee or other fiduciary on behalf of a nonresident individual beneficiary on a Form 1-ES. Each Form 1-ES must include only the social security number of the beneficiary on whose behalf the payment is being made. The employer identification number of the trust or estate of which the nonresident individual is a beneficiary is not to be included. [1]
Issue 4: How are the payments required to be "deducted and withheld" on behalf of a nonresident entity beneficiary that is a trust, corporate trust, or other entity to be reported to the Commonwealth, going forward?
Directive 4: Going Forward - Payments Made by Trustees or Other Fiduciaries on Form 2-ES are to be Treated as Estimated Tax Payments. For taxable years beginning on or after January 1, 2007, the amount "deducted and withheld" as tax is to be reported and paid by the trustee or other fiduciary on behalf of a nonresident entity beneficiary on a Form 2-ES. Each Form 2-ES must include only the beneficiary's identification number. The employer identification number of the trust or estate making the payment on behalf of the nonresident entity beneficiary is not to be included. [2]
Issue 5: How are the payments in Directives 3 and 4 to be reported on Schedule 2K-1?
Directive 5: The 2007 Schedule 2K-1, and all Schedules 2K-1 thereafter, will contain a line that reads "Estimated tax payments made on behalf of nonresident beneficiary by fiduciary."
Issue 6: On what line of Form 1NR/PY, Mass. Nonresident/Part-Year Resident Tax Return, should a nonresident individual beneficiary on whose behalf estimated tax payments are being made report the payments?
Directive 6: He or she should report such payments on the "Massachusetts estimated tax payments" line of his or her Form 1NR/PY.
Issue 7: On what line of Form 2, Form 3F, Form 3M, or other form should a nonresident entity beneficiary that is a trust, corporate trust, or other entity on whose behalf estimated tax payments are being made report the payments?
Directive 7: Estimated tax payments made on behalf of a nonresident entity beneficiary that files a Form 2, Form 3F, Form 3M, or other form for an income tax return ( i.e. a trust, corporate trust, or other entity) should be reported on the "Massachusetts estimated tax payments" line of the beneficiary's return.
Issue 8: How is conflicting language in TIR 04-23, the instructions to the 2006 and 2007 Form 1-ES and Form 2-ES, and the 2006 instructions to Form 2 to be reconciled with this Directive?
Directive 8: This Directive supersedes TIR 04-23 and the instructions noted above to the extent that they are inconsistent with it.
/s/Alan LeBovidge
Alan LeBovidge
Commissioner of Revenue
AL:MTF:pls
232192
April 6, 2007
DD 07-4