Technical Information Release  TIR 02-19: Massachusetts State Tax Relief for Victims of Terrorist Attacks

Date:	10/31/2002
Organization:	Massachusetts Department of Revenue
Referenced Sources:	Massachusetts General Laws

I. Introduction

Within the fiscal year 2003 state budget, sections 59, 60, and 65 incorporate relevant provisions of the federal Victims of Terrorism Tax Relief Act of 2001, Public Law 107-134, into Massachusetts law. See St. 2002, c. 184. This Technical Information Release describes items of income that are now excluded from Massachusetts gross income, an expanded personal income tax exemption for certain military and civilian employees of the United States, a multi-year tax forgiveness from personal income tax for specified terrorist victims, and new authority of the Commissioner of Revenue to suspend certain tax deadlines in certain circumstances. For the most part, the amendments to Massachusetts law are identical to the provisions in the federal Act. Where the provisions differ, this TIR explains the differences.

For purposes of the tax relief discussed within this TIR, the term "specified terrorist victim" means any decedent who dies as a result of wounds or injury occurred as a result of the terrorist attacks against the United States on April 19, 1995 or September 11, 2001 or as a result of illness incurred as a result of an attack involving anthrax occurring on or after September 11, 2001 and before January 1, 2002. Such term does not include any individual identified by the attorney general of the United States to have been a participant or conspirator or representative of such individual in any terrorist attack. This definition is the same as that appears in I.R.C. § 692(d)(4). See G.L. c. 62, § 25(c).

II. Exclusion of Certain Income from Massachusetts Gross Income

A. Non-Standard Death Benefits

Amounts paid by an employer by reason of the death of an employee, including a self-employed individual, who is a "specified terrorist victim" are excluded from gross income. St. 2002, c. 184, § 59, amending G.L. c. 62, § 2(a)(2) to add new subparagraph (L). See Section 102 of P.L. 107-134, amending I.R.C. § 101. The provisions under G.L. c. 62, § 2(a)(2)(L) are effective for tax years ending before, on, or after September 11, 2001. St. 2002, c. 184, § 242.

B. Canceled Debt

Normally, when a portion of a loan is forgiven, it is considered income to the debtor and therefore includable in gross income. Under St. 2002, c. 184, § 59, amending G.L. c. 62, § 2(a)(2) to add new subparagraph (M), a discharge of indebtedness due to the death of an individual as a result of the terrorist attacks is excluded from gross income. See Section 105 of P.L. 107-134. The provisions under G.L. c. 62, § 2(a)(2)(M) apply to discharges made on or after September 11, 2001 and before January 1, 2002. St. 2002, c. 184, § 242.

C. Qualified Disaster Relief

Amounts received by an individual as qualified disaster relief payments are excluded from gross income. St. 2002, c. 184, § 59, amending G.L. c. 62, § 2(a)(2) to add new subparagraph (N). See Section 111 of P.L. 107-134, adding new I.R.C. § 139. The provisions of G.L. c. 62, § 2(a)(2)(N) are effective for taxable years ending on or after September 11, 2001. St. 2002, c. 184, § 242.

D. Air Transportation Safety and Stabilization Act Payments

Any amount received as payment from the September 11 ^th Victims Compensation Fund of 2001 is excluded from gross income. St. 2002, c. 184, § 59, amending G.L. c. 62, § 2(a)(2) to add new subparagraph (O). See Section 111 of P.L. 107-134, adding new I.R.C § 139(f). The provisions of this subsection are effective for taxable years ending on or after September 11, 2001. St. 2002, c. 184, § 242.

E. Disability Income

Amounts received by survivors as disability income attributable to injuries incurred as a direct result of a terroristic or military action are excluded from gross income. St. 2002, c. 184, § 59, amending G.L. c. 62, § 2(a)(2) to add new subparagraph (P). See Section 113 of P.L. 107-134, amending I.R.C. § 104(a)(5). The provisions of this subsection are effective for taxable years ending on or after September 11, 2001. St. 2002, c. 184, § 242.

III. Exemption for Certain Military and Civilian Employees of the United States

An individual who dies while a military or civilian employee of the United States as a result of terroristic or military action and who otherwise qualifies under I.R.C. § 692 is exempt from taxation under G.L. c. 62 to the same extent as that individual is exempt from federal taxation. St. 2002, c. 184, § 60, amending G.L. c. 62, § 25. Prior to this amendment, the terroristic or military action that caused death had to occur outside of the United States. The provisions of this subsection are effective as of July 1, 2002.

IV. Multi-Year Tax Forgiveness from Personal Income Tax for Terrorist Victims

A. Specified Terrorist Victim

For certain taxable years, as explained in Section (IV)(B), below, no tax under G.L. c. 62 will be imposed upon "specified terrorist victims." St. 2002, c. 184, § 60, amending G.L. c. 25 to add new paragraph (c). See Section 101 of P.L. 107-134.

B. Years Eligible for Tax Forgiveness

For those who have died from the Oklahoma City attack on April 19, 1995, no tax will be imposed under G.L. c. 62 for the 1994 taxable year and all later taxable years up to and including the taxable year of death. For those who die or have died as a result of the September 11 ^th and anthrax attacks, no tax will be imposed under G.L. c. 62 for the 2000 taxable year and all later taxable years up to an including the taxable year of death. If, for all taxable years eligible for tax forgiveness, the tax under G.L. c. 62 that would have been imposed on the victim is less than $3,000, the victim's tax account will be treated as if a $3,000 tax payment was made against the tax liability for the victim's last taxable year. Any forgiven tax liability owed to Massachusetts will not have to be paid. Any forgiven tax liability that has already been paid will be refunded. See Section VI, below, for details on how to claim relief.

Example 1 . An individual who died in the September 11 ^th attacks had an income tax liability of $0 for 2000 and $2,400 for 2001. The $2,400 is eligible for forgiveness. The Department will forgive $2,400 and treat the difference between $3,000 and $2,400 ($600) as a tax payment for 2001.

Example 2 . A child who died in the September 11 ^th attacks had no ($0) income tax liability for 2000 or 2001. The Department will treat $3,000 as a tax payment for 2001.

Example 3. An individual who died in the September 11 ^th attacks had an income tax liability of $2,500 for 2000 and $2,300 for 2001. The total, $4,800 is eligible for tax forgiveness.

C. Items of Income Excluded from Tax Forgiveness

In determining the amount of tax that would have been imposed under G.L. c. 62 for purposes of tax forgiveness, Massachusetts follows the provisions of I.R.C. § 692(d)(3). See Section 101 of P.L. 107-134. The following items of income are not exempt from tax:

• amounts received as deferred compensation which would have been payable after death if the decedent had died other than as a specified terrorist victim, and
   
• amounts payable in the taxable year which would not have been payable in such year but for an action taken after September 11, 2001.

V. How to Claim Tax Relief

A. Return Required and Already Filed

If a return was required and has already been filed, a claim for relief on behalf of the affected taxpayer must be filed using Form CA-6, Application for Abatement/Amended Return for each taxable year in which relief is sought. Include with each claim for relief Form M-1310, Statement of Claimant to Refund Due a Deceased Taxpayer, if necessary, and proof of death. Proof of death can be shown by a copy of the death certificate or any other report of death issued by the Department of Defense.

Claims for relief must be made within three years from the due date for filing the return (regardless of any extension of time to file), within two years from the date the tax was assessed (the date printed on the Notice of Assessment) or deemed to be assessed, or within one year from the date the tax was paid, whichever is later. G.L. c. 62C, § 37. For example, taxpayers affected by either September 11 ^th or the anthrax attacks generally have until April 15, 2004, to file an amended return/claim for abatement on a 2000 Form 1 or Form 1-NR/PY that was filed by April 16, 2001. For taxpayers affected by the Oklahoma City attack, survivors and personal representatives have until July 1, 2003 to file an amended return/claim for abatement.

B.  Return Required But Not Yet Filed

If a return was required but has not yet been filed, a claim for relief on behalf of the affected taxpayer must be filed using either Form 1, Resident Income Tax Return or Form 1-NR/PY, Nonresident/Part-Year Resident Tax Return, depending on their resident status. Fill out Form 1 and/or Form 1-NR/PY according to its instructions but do not reduce the decedent's tax liability by any taxes that will be forgiven. Attach to each return a computation of the income tax to be forgiven. If the total forgiven tax liability for all eligible years is less than $3,000, attach to the decedent's final return a computation of the additional tax payment allowed. Include with each return Form M-1310, Statement of Claimant to Refund Due a Deceased Taxpayer, if necessary, and proof of death.

C.  Return Not Required and Not Filed

If a return was not required and was not filed, a claim for relief on behalf of the affected taxpayer must be filed using either Form 1, Resident Income Tax Return or Form 1-NR/PY, Nonresident/Part-Year Resident Tax Return, depending on their resident status, but only for the year of death. Fill out Form 1 and/or Form 1-NR/PY according to its instructions but do not reduce the decedent's tax liability by any taxes that will be forgiven. Attach to the return a computation of the income tax to be forgiven. If the total forgiven tax liability for all eligible years is less than $3,000, also attach a computation of the additional tax payment allowed. Include with each return Form M-1310, Statement of Claimant to Refund Due a Deceased Taxpayer, if necessary, and proof of death.

D.  Where to File Claims for Relief

To file a claim for relief, taxpayers should submit the necessary forms, as described above, to the Office of the Taxpayer Advocate, at the following address:

Department of Revenue
Office of the Taxpayer Advocate
51 Sleeper Street, 8 ^th floor
Boston, MA 02210

Taxpayers should include the applicable heading, from those shown below, on the return envelope and on the top of the return that they submit to the Department:

• Terrorism Relief Act - Oklahoma City
• Terrorism Relief Act - 9/11
• Terrorism Relief Act - Anthrax.

VI. Suspension of Certain Tax Deadlines

Effective for disasters and terroristic or military actions occurring on or after September 11, 2001, the Commissioner may suspend, for up to one year, certain time periods and deadlines under G.L. c. 62C for taxpayers that are affected by a Presidentially declared disaster or a terroristic or military action. St. 2002, c. 184, § 65, amending G.L. c. 62 by adding new § 87; St. 2002, c. 184, § 242. See Section 112 of P.L. 107-134, amending I.R.C. § 7508A.

Specifically, the Commissioner may specify a period of up to one year after the date of such disaster or action that may be disregarded in determining the following:

• whether any of the acts described in G.L. c. 62C, § 81(a)(1) were performed within the time prescribed therefore, without regard to extension (including, but not limited to, filing returns, making payment of taxes, and filing abatement applications);
   
• the amount of any interest, penalty, additional amount, or addition to tax for periods after the date of such disaster or action; and
   
• the amount of any credit or refund.

Taxpayers with further questions about the tax relief discussed in this TIR should contact the Department through the Office of the Taxpayer Advocate at [phone] or the Rulings and Regulations Bureau at [phone].


/s/ Alan LeBovidge
Alan LeBovidge
Commissioner of Revenue

AL:DMS:rmh

October 31, 2002

TIR 02-19