Directive

Directive Directive 88-19: Loss on Sale of Tax-Exempt Bonds

Date: 12/31/1988
Organization: Massachusetts Department of Revenue
Referenced Sources: Massachusetts General Laws

Personal Income Tax

 

FACTS: Taxpayer Able purchased bonds issued by the Massachusetts Turnpike Authority. When the bonds had declined in value, Able sold them at a loss.

ISSUE: May Able take a loss deduction on the sale of bonds issued by the Massachusetts Turnpike Authority?

DISCUSSION: Under federal law, the gain or loss on the sale of Massachusetts state and local government bonds is taxable. I.R.C. § 61. Under G.L. c. 62, however, the gain or loss on such sales may not be subject to tax.

The Massachusetts statutes enabling state and local authorities to issue bonds often specify the tax treatment of these bonds. The statute authorizing the Massachusetts Turnpike Authority to issue bonds provides that "[the transfer of] the bonds issued under the provisions of this act … shall at all times be free from taxation within the commonwealth." G.L. c. 81, App. § 1-13. To be "free from taxation" means no tax consequences result on the transfer of the bonds; consequently, neither gain nor loss is recognized. See Hampers v. Commissioner of Revenue, A.T.B. No. 132489 (4/30/85).

DIRECTIVE: Since the statute authorizing the Massachusetts Turnpike Authority to issue bonds provides that the transfer of those bonds is free from taxation, Able cannot recognize a loss on the sale.
 

REFERENCE: G.L. c. 81, App. § 1-13; I.R.C. § 61, Hampers v. Commissioner of Revenue, A.T.B. No. 132489 (4/30/85).
 

/s/Stephen W. Kidder
Stephen W. Kidder
Commissioner of Revenue
 

December 31, 1988
 

DD 88-19
 

 

This Directive represents the official position of the Department of Revenue on the application of the law to the facts as stated. The Department and its personnel will follow this Directive, and taxpayers may rely upon it, unless it is revoked or modified pursuant to 830 CMR 62C.01(5)(e). In applying this Directive, however, the effect of subsequent legislation, regulations, court decisions, Directives, and TIRs must be considered, and Department personnel and taxpayers may rely upon this Directive only if the facts, circumstances and issues presented in other cases are substantially the same as those set forth in this Directive.

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