Directive Directive 10-4: Interest on G.L. c. 62C, ss. 35A-35E Penalties

Date: 07/12/2010
Organization: Massachusetts Department of Revenue
Referenced Sources: Massachusetts General Laws

Tax Administration

I. Issue:

When does interest begin to accrue on penalties assessed under G.L. c. 62C, §§ 35A-35E?

II. Directive:

Interest will accrue starting 31 days after the notice of assessment of penalties under G.L. c. 62C, §§ 35A-35E and will continue to accrue on any unpaid amounts until the penalty is paid in full.

III. Discussion:

The circumstances in which G.L. c. 62C, §§ 35A-35E penalties apply include the following:

1. A taxpayer (a) substantially understates a tax liability or; (b) underpays taxes due to negligence or disregard of Massachusetts laws, including public written statements of the Commissioner [1];

2. A preparer with respect to a tax return or claim for abatement or refund knows or reasonably should know that the return or claim reflects a position or positions unsupported by Massachusetts law, and the position was not disclosed or was frivolous; or a preparer willfully attempts to understate tax liability or demonstrates a careless, reckless or intentional disregard of Massachusetts tax laws or written public statements issued by the Commissioner [2];

3. A taxpayer takes a tax return reporting position on an issue in Massachusetts that is inconsistent with a position taken in another state and the governing law relating to that issue is the same in all material respects in Massachusetts and the other state [3], and;

4. A person organizes, assists in the organization of, or sells (or assists in the sale of) any plan or arrangement, and makes or furnishes, or causes another person to make or furnish, a false, fraudulent or deliberately misleading statement with respect to the allowability of any deduction or credit, the excludability of any income, or the securing of any other tax benefit, including the avoidance of a filing requirement [4].

The G.L. 62C §§ 35A-35E penalties are assessed in the manner of a tax pursuant to the provisions of G.L. c. 62C. See TIR 06-5 and the Department's regulation on Interest, Penalties and Application of Payments, 830 CMR 62C.33.1(5)(g) - (k).

That regulation, 830 CMR 62C.33.1(4)(b), states:

Generally, interest is computed on a daily basis on unpaid tax from the statutory due date of the return to and including the date of full payment of the tax. However, if the Commissioner makes an assessment of tax...and issues a Notice of Assessment, interest on the assessed tax is computed from the statutory due date of the return to and including the thirtieth day following the date of Notice of Assessment, even if payment in full is made prior to such thirtieth day. If the tax, or any portion thereof, is not paid by the thirtieth day following the Notice of Assessment, interest again accrues on a daily basis until the tax is paid in full.

The regulation further provides with respect to the computation of interest on penalties under G.L. c. 62C, § 33:

Interest accrues on the failure to file penalty under M.G.L. c. 62C, § 33(a), starting on the later of the statutory due date or the last day of a valid extension of time to file the return, and continuing to the date of the payment of the penalty, and on failure to pay penalties under M.G.L. c. 62C, §§ 33(b) and 33(c), starting 31 days after the notice of assessment and continuing to the date of full payment of the penalty amounts. See 830 CMR 62C.33.1(6)(b).

The penalties under G.L. c. 62C, §§ 35 A-35 E, generally apply to situations where a return has been filed. Interest will accrue on the G.L. c. 62C, §§ 35 -35E penalties starting 31 days after the notice of assessment and continuing to the date of full payment of the penalty amounts, which is consistent with the calculation of interest on penalties imposed by G.L. c. 62C, §§ 33(b) and 33(c). The rate of interest on underpayments of tax, interest, and penalties may change quarterly. See G.L. c. 62C, § 32 and the Department's quarterly interest rate TIRs. This Directive supplements TIR 06-5.

/s/Navjeet K. Bal
Navjeet K. Bal
Commissioner of Revenue


July 12, 2010

DD 10-4

Table of Contents

[1] G.L. c. 62C, § 35A

[2] G.L. c. 62C, § 35C

[3] G.L. c. 62C, § 35D

[4] G.L. c. 62C, § 35E

Referenced Sources: