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Technical Information Release

Technical Information Release TIR 86-7: Expedited Abatement Procedures for Claiming Refunds of Overpaid Taxes Resulting from Treatment of a Portion of AT&T Distributions as Taxable Dividend

Date: 12/23/1986
Organization: Massachusetts Department of Revenue
Referenced Sources: Massachusetts General Laws

Tax Administration/Personal Income Tax

A recent decision of the United States Tax Court declared that the Internal Revenue Service (IRS) treatment of some of the stock resulting from the AT&T divestiture, namely, Pacific Telesis Group stock, was incorrect. Edna Louise Dunn Trust v. Commissioner, 86 T.C. No. 46, slip op. (1986). AT&T shareholders who followed IRS instructions and treated Pacific Telesis Group stock as a taxable dividend in tax year 1984 for federal and Massachusetts purposes may be entitled to refunds of federal and Massachusetts income tax.

The IRS has developed expedited procedures for refund claims of those AT&T shareholders who treated the Pacific Telesis Group stock as a taxable dividend. Most taxpayers received notice of these procedures in IRS Notice 773, and the IRS republished the procedures in IRS Notice 86-8. The purpose of this Technical Information Release is to explain the special abatement procedures developed by the Massachusetts s Department of Revenue for tax refunds in connection with the AT&T divestiture.

Massachusetts Refunds of Overpaid Taxes

Any Massachusetts taxpayer who treated the Pacific Telesis Group stock as a taxable dividend for Massachusetts income tax purposes in 1984 may claim a refund of overpaid tax. In order to claim a refund of the overpaid tax, the taxpayer must complete a Department of Revenue Application For Abatement (Form CA-6), attaching, if possible, a copy if IRS Notice 773 to the form and writing "AT&T claim" on the front of the form. The Application For Abatement for overpaid Massachusetts taxes must be filed with the Massachusetts Department of Revenue by April 15, 1988, or within one year of receiving a refund from the Internal Revenue Service of overpaid federal tax, whichever date occurs later.

Massachusetts Basis Adjustments

In IRS Notice 86-8, the IRS also published a new method for the allocating of the tax basis in the AT&T stock which was held before the divestiture of AT&T. Those AT&T shareholders who reported the dividend income from the Pacific Telesis Group stock and allocated tax basis according to the original "IRS Method" must reallocate the tax basis in the AT&T stock and in the shares of the seven regional companies according to the new "Alternative Method," which is explained in IRS Notice 86-8. For Massachusetts tax purposes, a taxpayer's tax basis in AT&T stock and in the shares of the seven regional companies must correspond to the federal tax basis as recalculated using the new "Alternative Method."

Additionally, those taxpayers who used the original "IRS Method" to allocate their tax basis in the AT&T stock and in the shares of the seven regional companies, and who sold shares in such stock after January 1, 1984, must recalculate the gains and losses from such sales using the new "Alternative Method," explained in IRS Notice 86-8. Taxpayers must report any resulting changes in Massachusetts tax liability by filing an amended return for the taxable year in which the shares were sold, along with the payment of any additional tax, if applicable. Individual taxpayers must file an Amended Massachusetts Income Tax Return (Form 33) and write "AT&T claim" on the front for the form. Corporate taxpayers must file a copy of their original return (Form 355A or B), a revised Form 355A or B (indicating the applicable changes and writing "AT&T claim" on the front of the form), a copy of IRS Form 1040X and a revised Schedule D.


Ira A. Jackson
Commissioner of Revenue

December 23, 1986

TIR 86-7

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