|Organization:||Massachusetts Department of Revenue|
|Referenced Sources:||Massachusetts General Laws|
Corporate/Personal Income Tax
Homeowners associations have historically filed returns in Massachusetts under the corporate excise provisions at G.L. c. 63 if the associations were incorporated (DD 86-6), and under the personal income tax provisions at G.L. c. 62 if the associations were unincorporated (DD 86-7). The 2008 legislation that brought Massachusetts into conformity with federal entity classification rules had the effect of requiring all entities that file federally as corporations to file in Massachusetts as corporations, unless a statutory exemption applies. See generally St. 2008, c. 173. Under federal law, homeowners associations, whether incorporated or unincorporated, file a federal corporate return.  The effect of Massachusetts' conformity with federal entity classification was to require all homeowners associations, whether incorporated or unincorporated, to file a return under Chapter 63.
In order to restore the filing requirements of homeowners associations to historical practice, recent legislation has amended the corporate excise statute to modify the treatment of unincorporated homeowners associations in certain circumstances. See St. 2009, c. 166, §§ 20, 25, 46. By this legislation, "an unincorporated entity within the definition of, and electing to be treated as, a homeowners association under section 528(c) of the Code and subject to tax for the taxable year as provided in section 5C of chapter 62" is not subject to the corporate excise at G.L. c. 63, § 39.  See G.L. c. 63, § 68C(9).
Instead of filing a corporate excise return, a qualifying homeowners association will continue to file its return under the personal income tax provisions of chapter 62 of the General Laws, under the terms of the new G.L. c. 62, § 5C, which states:
SECTION 5C. An unincorporated association within the definition of and electing to be treated as a homeowners association under section 528(c) of the Code for a taxable year shall be subject to tax under this chapter on its income as a resident individual for the taxable year. Its gross income shall be calculated under subsection (a) of section 2, and its taxable income shall be defined as in section 528(d)(1), (3) of the Code, to the extent consistent with the laws of the commonwealth. No such association shall be allowed the deductions or exemptions under section 3. The modifications under section 528(d)(2) of the Code shall not apply in determining taxable income for purposes of this chapter." See St. 2009, c. 166, § 20.
Both the statutory exemption and the new provisions at G.L. c. 62, § 5C are effective for tax years beginning on or after January 1, 2009. See St. 2009, c. 166, § 46.
Unincorporated homeowners associations meeting the terms of G.L. c. 63, § 68C (9) are not required to file corporate excise returns for tax years beginning on or after January 1, 2009. Rather, they must file returns under chapter 62, generally the Form 3M or the Form 3, as determined by the forms instructions. Unincorporated homeowners associations that qualify as tax exempt under IRC § 501(c)(4) and file federal form 990-T should file form M-990-T-62.
In calculating the taxable income of a homeowners association under G.L. c. 62, § 5C, taxpayers will determine taxable income and exempt function income as under IRC §§ 528(d)(1), and 528(d)(3), respectively. The specific federal deduction of $100, under IRC § 528(d)(2)(A), is not allowed in calculating Massachusetts taxable income for unincorporated homeowners associations. The modifications under IRC § 528(d)(2)(B), (C), relating to corporate modifications to income, are inapplicable in calculating G.L. c. 62 income.
Incorporated entities that qualify federally as homeowners associations under IRC § 528(c) will continue to file the appropriate Massachusetts corporate form, in the 355 series. Incorporated homeowners associations that qualify as tax exempt under IRC § 501(c)(4) will file the Form M990-T-62. Unincorporated entities that do not qualify as homeowners associations under IRC § 528(c) (such as the so-called "IRC § 277 filers") and that file a federal corporate form (usually the Federal Form 1120) must file a Massachusetts corporate excise return in the 355 series.
/s/Navjeet K. Bal
Navjeet K. Bal
Commissioner of Revenue
March 4, 2010