| Date: | 01/11/1993 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Personal Income Tax
1. Introduction
This Technical Information Release (TIR) explains the deduction for interest paid on Massachusetts estate tax liabilities for Massachusetts estate tax purposes. A deduction for interest paid by an estate on its Massachusetts estate tax liability is now allowable as an administration expense for Massachusetts estate tax purposes, provided that the interest has been paid or has accrued within three years from the due date of the return, regardless of any extension granted. G.L. c. 65C, § 3(b), as amended by St. 1985, c. 711. A deduction for interest paid by an estate on its federal estate tax liability continues to be allowable as an administration expense for Massachusetts estate tax purposes. G.L. c. 65C, § 3(b) and § 2053 of the Internal Revenue Code.
2. Discussion
The Massachusetts estate tax law in general follows the Internal Revenue Code, as amended and in effect on January 1, 1975 (Code). G.L. c. 65C, § 1. Under section 2053 of the Code, federal and state estate taxes are not allowed as deductions for federal estate tax purposes. Interest on federal estate tax installment payments, however, is allowable as a deduction for administration expenses under section 2053 of the Code and similarly is allowable as an administration expense deduction for Massachusetts estate tax purposes. In order to be allowed as an administration expense deduction, interest on an estate tax liability must be for the benefit of the estate and not for the benefit of beneficiaries. Internal Revenue Code § 2053-3.
A Massachusetts estate tax deduction for interest on Massachusetts estate tax liabilities has previously not been allowed for state tax purposes because interest becomes a part of the tax under G.L. c. 65C, § 32, and estate taxes are not allowed as a deduction under § 2053 of the Code. However, in Commissioner of Revenue v. Molesworth, 408 Mass. 580 (1990), the Massachusetts Supreme Judicial Court ruled that the proper interpretation of tax under G.L. c. 62C, § 32, upon which interest was to be calculated, was the amount of tax shown on a properly completed and timely filed return. Thus, the "tax" due figure does not incorporate accrued interest.
Based on the Court's holding in Molesworth, interest paid by an estate on a Massachusetts estate tax liability now is allowable as an administration expense deduction for Massachusetts estate tax purposes, provided that the interest has been paid or has accrued within three years from the due date of the return, regardless of any extension granted. G.L. c. 65C, § 3(b).
3. Administrative Provision
In order to allow a deduction as an administration expense for interest paid by an estate on a Massachusetts estate tax liability, the Massachusetts estate tax return must be accompanied by an explanation of the interest computation. If interest continues to accrue and is allowed as a deduction, the estate tax liability changes accordingly and a circular (interrelated) computation may be necessary in order to determine the final estate tax liability.
If the interest deduction involves a circular computation, the estate tax return must be accompanied by an explanation and copy of the circular calculation of the final Massachusetts estate tax liability. For an explanation of the methods to use when a circular computation is necessary for determining estate taxes, see Internal Revenue Service Publication 904.
/s/ Mitchell Adams
Mitchell Adams
Commissioner of Revenue
TIR 93-1
January 11, 1993