Technical Information Release  TIR 00-13: Limitation Period for Taxpayers that Fail to File Tax Returns then Voluntarily Disclose the Failure to File to the Commissioner at a Later Date

Date:	11/29/2000
Referenced Sources:	Massachusetts General Laws

Tax Administration

I. PURPOSE

When a taxpayer fails to file a required tax return, the Commissioner may make an assessment of tax at any time, without giving notice of his intention to assess. See c. 62C, § 26(d). However, in any instance involving a failure to file, the Commissioner generally seeks to balance considerations of taxpayer compliance and appropriate agency resource allocation. In keeping with these general considerations, the Commissioner announced in TIR 96-2 the following administrative policy that applied to non-filing taxpayers: In those instances in which either (i) the Department determines that a taxpayer with a filing obligation has not filed returns, or (ii) a taxpayer voluntarily discloses to the Department that it has not filed returns, the Department would, as a general rule, limit its "look-back" period for assessing that non-filing taxpayer to the seven most recent tax years. TIR 96-2 announced a fundamental change in the Department's prior policy under which a non-filing taxpayer could legally be assessed for any outstanding tax, regardless of the length of time that had passed since the filing requirement.

To encourage voluntary compliance, the Department announces in this TIR a further reduction in the look-back period for a non-filing taxpayer that voluntarily discloses its noncompliance to the Department. As a general rule, the look-back period for a taxpayer that voluntarily discloses its non-filing will be the three most recent tax years. However, if the Department determines, independent of any voluntary disclosure, that a taxpayer with a filing obligation has not filed returns, the seven-year look-back period of TIR 96-2 will generally apply. TIR 96-2 is, therefore, revoked in part. The Department will implement this revised policy as of December 1, 2000.

II. POLICY

As a general rule, subject to the exceptions described in Section IV below, in the event that a taxpayer voluntarily discloses to the Commissioner the taxpayer's failure to file tax returns that were required by a particular type of tax, the Commissioner will assess the taxpayer with respect to returns due during the most recent three years provided that the taxpayer voluntarily files the three most recent past due tax returns of that tax type. The three-year (i.e., thirty-six month) look-back period will commence with the final day of the most recent taxable period for which the taxpayer was required to file a return of the type in question, as determined (without regard to extensions) at the time the taxpayer voluntarily files some or all of its overdue returns. The Commissioner will assess the taxpayer for the tax type in question for all taxable periods ending during the three-year period described.

The policy stated in this TIR does not affect assessments which the Commissioner might otherwise lawfully make (e.g., as to returns which are subsequently required, insufficient returns and the failure to pay a required tax).

III. EXAMPLES

The following examples illustrate the application of the three-year (i.e., thirty-six month) rule for taxpayers that voluntarily disclose the non-filing of past due returns. The examples assume that no other assessment of the taxpayer is warranted and that the exceptions in Section IV, below, do not apply. In each instance, if the taxpayer fails to file a return subsequent to the three-year period, the Commissioner will assess the taxpayer for the tax period for that return.

Example 1. Taxpayer is an individual who fails to file income tax returns for the calendar years 1994-1998. On December 1, 1999, taxpayer voluntarily discloses to the Commissioner that she failed to file her income tax returns for the 1996-1998 calendar years. Taxpayer's most recent income tax return due at the time of the voluntary disclosure is her 1998 calendar year return, which was due April 15, 1999. Under the three-year rule for taxpayers that voluntarily disclose the non-filing of past due returns, taxpayer files her income tax returns for the tax years 1996-1998. The Commissioner will not assess taxpayer for tax years 1994-1995.

Example 2. Same facts as Example 1, except that taxpayer can establish that she previously filed timely income tax returns for the calendar years 1997-1998. Under the three-year rule for taxpayers that voluntarily disclose the non-filing of past due returns, taxpayer files her income tax return for the 1996 calendar year. The Commissioner will not assess taxpayer for calendar years 1994-1995.

Example 3. Taxpayer is an individual who fails to file her federal and Massachusetts income tax returns for the calendar years 1992-1998. On November 15, 1999, an IRS agent, working on a six-year look-back rule secured returns for calendar years 1993-1998. On December 1, 1999, taxpayer voluntarily discloses to the Commissioner that she failed to file her income tax returns for the 1996-1998 calendar years. Taxpayer's most recent income tax return due at the time of the voluntary disclosure is her 1998 calendar year return, which was due April 15, 1999. Under the three-year rule for taxpayers that voluntarily disclose the non-filing of past due returns, taxpayer files her income tax returns for the tax years 1996-1998. The Commissioner will not assess taxpayer for tax years 1992-1995.

Example 4. Same facts as Example 3, except that before taxpayer voluntarily discloses to the Commissioner that she failed to file her Massachusetts income tax returns for the calendar years 1996-1998, the Department receives information through the IRS exchange program that taxpayer filed delinquent federal income tax returns for tax years 1993-1996 and determines that three of them (1993-1995) remain outstanding with the state. Because the Department discovered taxpayer's delinquent income tax returns through the IRS exchange program, independent of taxpayers voluntary disclosure, the Commissioner can assess taxpayer for the calendar years 1992-1998 in compliance with the seven-year look-back rule set forth in TIR 96-2.

Example 5. Taxpayer is a corporation that fails to file required quarterly sales and use tax returns during the six years 1994-1999. Taxpayer did not collect sales and use taxes during this period. Taxpayer's quarterly sales and use tax returns were required to be filed during the years in question for the calendar quarters ending March 31, June 30, September 30 and December 31. On December 1, 1999, taxpayer voluntarily discloses to the Commissioner that it failed to file returns with respect to sales and use tax for the three-year (i.e., thirty-six month) period beginning October 1, 1996 and ending September 30, 1999. Taxpayer's most recent sales and use tax return due at the time of the voluntary disclosure is the quarterly tax return for the three-month period ending September 30, 1999, which was due October 20, 1999. Under the three-year rule for taxpayers that voluntarily disclose the non-filing of past due returns, taxpayer files its sales and use returns for each of its twelve taxable quarters which encompass the three-year (i.e., thirty-six month) period beginning October 1, 1996 and ending September 30, 1999. The Commissioner will not assess taxpayers for the quarters for the period beginning January 1, 1994 and ending September 30, 1996.

Example 6. Taxpayer is a corporation that fails to file corporate excise returns for the years 1993-1998. During the years in question, taxpayer's corporate excise returns were required to be filed on a calendar year basis. However, during the years 1993-1995, taxpayer was an S corporation. Moreover, in June of 1996, taxpayer revoked its status as an S corporation, effective July 1, 1996. Thus, taxpayer was required to file two short-period corporate excise returns for the twelve-month period ending December 31, 1996. On December 1, 1999, taxpayer voluntarily discloses to the Commissioner that it failed to file returns with respect to the corporate excise for the years 1996-1998. Taxpayer's corporate excise return which was last due at the time of the voluntary disclosure is its 1998 calendar year return which was due March 15, 1999. Under the three-year rule for taxpayers that voluntarily disclose the non-filing of past due returns, taxpayer files its corporate excise returns for the calendar years 1996-1998 (including the two short-period returns that were required to be filed for 1996). The Commissioner will not assess taxpayer for calendar years 1993-1995.

Example 7. Taxpayer is a corporation that fails to file corporate excise returns for its fiscal year ending August 31 for the five years 1992-1997. On December 1, 1999, taxpayer voluntarily discloses to the Commissioner that it failed to file returns for the tax year 1997. Taxpayer can establish that it has previously filed timely corporate excise returns for its fiscal year for each of the two years ending August 31, 1998 and August 31, 1999. Taxpayer's corporate excise return that was last due at the time of the voluntary disclosure is its 1999 fiscal year return that was due November 15, 1999. Under the three-year rule for taxpayers that voluntarily disclose the non-filing of past due returns, taxpayer files its corporate excise return for fiscal year ending August 31, 1997. The Commissioner will not assess taxpayer for tax years 1992-1996.

Example 8. Taxpayer is a corporation that fails to file corporate excise returns for the years 1993-1997. For the years 1993-1996 taxpayer's corporate excise returns were required to be filed on a calendar year basis. Taxpayer terminates its business activity and ceases its existence for tax purposes June 30, 1997. On December 1, 1999, taxpayer voluntarily discloses to the Commissioner that it failed to file returns with respect to the corporate excise for the years 1995-1997. Because taxpayer contacts the Commissioner after the due date for its final corporate excise return (i.e., September 15, 1997), taxpayer is liable for the final three years for which it was required to file corporate excise returns. Therefore, taxpayer files its corporate excise tax return for its six-month period ending June 30, 1997, and for its prior two calendar years (i.e., for taxpayer's two calendar years ending December 31, 1995 and December 31, 1996). The Commissioner will not assess taxpayer for calendar years 1993-1994.

Example 9. Taxpayer is a corporation that fails to file corporate excise returns for the years 1995-1998. During the years in question, taxpayer's corporate excise returns were required to be filed on a calendar year basis. However, during 1999 taxpayer changes the manner in which it conducts business such that it will not be subject to the corporate excise during the calendar year 2000 and thereafter. On December 1, 1999, taxpayer voluntarily discloses to the Commissioner that it failed to file returns with respect to the corporate excise for the years 1996-1998. Taxpayer's corporate excise return which was last due at the time of the voluntarily disclosure is its 1998 calendar year return which was due March 15, 1999. Under the three-year rule for taxpayers that voluntarily disclose the non-filing of past due returns, taxpayer files its corporate excise returns for the calendar years 1996-1998. In addition, because taxpayer voluntarily discloses before the due date for its final, 1999 corporate excise return (i.e., March, 15, 2000), the Commissioner will assess taxpayer for its 1999 calendar year if taxpayer subsequently fails to file its return for that year. The Commissioner will not assess taxpayer for calendar year 1995.

IV. EXCEPTIONS

A. In general. In certain instances when a taxpayer has not filed returns with respect to a specific tax type, the Commissioner will assess such taxpayer without reference to the above-stated policy. In making such determinations, the Commissioner will consider all the pertinent facts and circumstances, including:
 

• the degree of flagrancy and history of noncompliance;
   
• special circumstances peculiar to the specific taxpayer, class, industry or type of tax;
   
• the existence of income from illegal sources;
   
• the effect of assessment on voluntary compliance; and
   
• the cost to the Commissioner to secure a return with respect to anticipated tax revenue.

B. Assessment of all years. In certain instances when a taxpayer has not filed tax returns with respect to a specific tax type, the Commissioner will assess such taxpayer for all taxable periods for which a return is due. In general, a taxpayer will be assessed for all taxable periods for which a return is due in each of the following instances:
 

• a failure to file returns and remit withholding tax pursuant to c. 62B, § 2;
   
• a failure to file returns and remit trust fund monies collected but not paid over
  (such as sales tax, meals tax or room occupancy tax);
   
• a knowing or willful failure to file returns with the intent to avoid the payment of tax
  (including instances punishable pursuant to c. 62C, §§ 73(a) and (b));
   
• a willful neglect to file returns despite reasonable cause to know of a filing
  responsibility; and
   
• sporadic filings not justified by objective circumstances.

V. EFFECTIVE DATE

The policy set forth in this TIR will apply to a taxpayer's overdue tax returns and payments concerning a particular tax type when the taxpayer voluntarily files the three most recent past due returns on or after December 1, 2000.

Frederick A. Laskey,
Commissioner of Revenue

TIR 00-13
November 29, 2000