Code of Massachusetts Regulations
830 CMR - DEPARTMENT OF REVENUE
Title 830 CMR 62C.00 - State Tax Administration
Section 62C.24A.1 - Unified Audit Procedures for Pass-through Entities

Universal Citation: 830 CMR 62C.00 MA Code of Regs 62C.24A.1

Current through Register 1531, September 27, 2024

(1) Statement of Purpose, Application of Regulation, Organization.

(a) Purpose. The purpose of unified audit and appeal procedures for pass-through entities is to streamline audit, assessment, and appeal procedures as they apply to pass-through entities and their members (whether direct or indirect, as described in 830 CMR 62C.24A.1) and to ensure consistent tax treatment of the members of a pass-through entity. 830 CMR 62C.24A 1 describes the administrative procedures applicable to a pass-through entity and its members subject to a unified audit proceeding.

(b) Application of 830 CMR 62C.24A.1.
1. Generally, in instances where Massachusetts unified audit procedures are substantially similar to the tax administration procedures under Internal Revenue Code sections 6221-6233 (TEFRA), Massachusetts unified audit procedures will be informed by TEFRA and the regulations and Internal Revenue Service interpretations and practices thereunder.

2. Unified audit procedures may be commenced after the promulgation of 830 CMR 62C.24A.1 without regard to the taxable year of the pass-through entity subject to audit or the taxable year of its members. If a pass-through entity is subject to a unified audit proceeding for a tax year, the unified audit determination applies to the entity's members that have pass-through entity items associated with the pass-through entity for that year, except to the extent a direct member has elected not to participate in the unified audit, or, in a tiered structure, pass-through members or indirect owners of a source pass-through entity have elected not to participate in the unified audit.

3. 830 CMR 62C.24A 1 does not require the Commissioner to perform a unified audit of any pass-through entity. The Commissioner has discretion to audit and assess or abate the tax of one or more members of a pass-through entity without conducting a unified audit, and such audit, assessment, or abatement may encompass adjustments attributable to pass-through entity items as well as any other items.

(c) Organization. 830 CMR 62C.24A.1 is organized as follows:
1. Statement of Purpose, Application of Regulation, Organization;

2. Definitions;

3. Pass-through Entities Subject to Unified Audits;

4. Conduct of Unified Audit;

5. Member Assessment Procedure; Contesting Computational Adjustments;

6. Procedures for a Member to Elect Not to Participate in Unified Audit; Commissioner's Treatment of a Member's Pass-through Entity Items as Non-unified Audit Pass-through Items;

7. Consequences of Unified Audit for Members, Pass-through Members and their Members, and Indirect Owners That Have Elected Not to Participate in the Unified Audit;

8. Relationship between Determinations of Tax in Unified Audits and in Member Audits;

9. Notification of Unified Audit Proceedings by Commissioner;

10. Designation of Tax Matters Partner; Tax Matters Partner's Powers and Obligations; Other Pass-through Entity Notice Provisions;

11. Period of Limitations for Notice of Determination Under Unified Audit;

12. Period of Limitations for Assessment of Members;

13. Consistency of Characterization of Pass-through Entity Items.

(2) Definitions. For purposes of 830 CMR 62C.24A.1, the following terms have the following meanings.

Affected Item, an item on the member's return that is not a pass-through entity item, but one that is affected by adjustments to the tax treatment of a pass-through entity item.

Commissioner, the Commissioner of Revenue.

Computational Adjustment, adjustment to a member's return and assessment or reduction of tax in order to take into account unified audit results on pass-through entity items and affected items.

Department, the Massachusetts Department of Revenue.

Direct Member, a person or entity reporting or required to report or otherwise entitled to a distributive share of an item from a source pass-through entity of which the person or entity is a partner, S corporation shareholder, or beneficiary. There are no pass-through members between a direct member and the source pass-through entity.

Indirect Owner, a person or entity reporting or required to report or otherwise entitled to, through one or more pass-through members in a tiered structure, a distributive share of an item originating with a source pass-through entity which passes through one or more pass-through members that directly or indirectly have an ownership interest in the source pass-through entity. Unless otherwise specified in 830 CMR 62C.24A.1, the term Member encompasses indirect owners.

Member, a person or entity reporting or required to report or otherwise entitled to a distributive share of an item from a pass-through entity, including indirect owners and pass-through members.

Non-unified Audit Pass-through Items, a member's pass-through entity items that are not included in a unified audit proceeding due to:

(a) a member's election not to participate in the unified audit proceeding (see 830 CMR 62C.24A.1(6)(a)); or

(b) the Commissioner's decision to exclude a member from the unified audit (see 830 CMR 62C.24A.1(6)(b)).

Notice Member, a direct member to which the Commissioner will provide information regarding the commencement of a unified audit under 830 CMR 62C.24A.1(9)(b), if the Tax Matters Partner has timely provided the Commissioner with the necessary information as required under 830 CMR 62C.24A.1(10)(d).

Partnership, an entity, including, without limitation, a general partnership, a limited partnership, a limited liability partnership, a limited liability company, or any other entity, that in each case is treated as a partnership under M.G.L. c. 62 or 63 for the tax period or periods at issue.

Pass-through Entity, an entity whose income, gains, losses, deductions or credits pass through to members for Massachusetts tax purposes, including a partnership, an S corporation, or a trust.

Pass-through Entity Items, items of income, gain, loss, deduction or credit that originate with a pass-through entity. In addition, items more appropriately determined at the pass-through entity level than at the member level, such as entity-level penalties, additions to tax or additional amounts relating to adjustment of pass-through entity items, may be treated as pass-through entity items under 830 CMR 62C.24A.1.

Pass-through Member, a pass-through entity in a tiered structure through which indirect owners hold an interest in a source pass-through entity with respect to which unified audit proceedings are conducted.

S Corporation, any corporation for which an S corporation election under Internal Revenue Code section 1362(a) is in effect for the taxable year subject to unified audit.

Source Pass-through Entity, in a tiered structure, the originating pass-through entity of an item of income, gain, loss, deduction or credit that passes to an indirect owner. A reference in 830 CMR 62C.24A.1 to the "source pass-through entity" refers to the entity with respect to which unified audit proceedings are conducted, and which receives the Notice of Unified Audit.

Tax Matters Partner, the member designated to represent a pass-through entity in unified audit proceedings. The Tax Matters Partner has the power, on behalf of a pass-through entity's members, to enter into settlements or extensions of the period of limitations on determinations, and has duties of representation and notice as specified in 830 CMR 62C.24A.1(10), similar to, but not restricted by, the powers and duties specified to the Tax Matters Partner under TEFRA.

Tiered Structure, an entity ownership structure in which a pass-through entity is a member of another pass-through entity.

Unified Audit, the Commissioner's conduct of an audit of a pass-through entity and its members, with respect to pass-through entity items and affected items, under audit and appeal procedures pursuant to M.G.L. c. 62C, § 24A, and 830 CMR 62C.24A.1.

(3) Pass-through Entities Subject to Unified Audits.

(a) Partnerships. All partnerships that are pass-through entities, whether or not subject to unified audits under TEFRA, are subject to unified audit procedures.

(b) S Corporations. All S corporations are subject to unified audit procedures.

(c) Trusts. Trusts that are pass-through entities are subject to unified audit procedures.

(4) Conduct of Unified Audit.

(a) Commencement and Termination of Unified Audit. The Commissioner will commence a unified audit of a pass-through entity by sending a Notice of Unified Audit to the Tax Matters Partner. The Commissioner will conduct the unified audit in the manner described in 830 CMR 62C.24A.1, until such time as a final determination is reached or the Commissioner decides to terminate the audit.

(b) Member's Right to Elect Not to Participate in Unified Audit. A member may elect not to participate in the unified audit, as provided in 830 CMR 62C.24A.1(6)(a). A member electing not to participate in the unified audit is subject to the administrative provisions of M.G.L. c. 62C but not the unified audit rules under M.G.L. c. 62C, § 24A except that the member is subject to the extended period of limitations on assessments specified in 830 CMR 62C.24A.1(12)(b) for non-unified audit pass-through items and affected items.

(c) Conduct of Audit. In general, in the course of a unified audit of a pass-through entity, the Commissioner shall inspect the books, papers, and other records of the pass-through entity to determine whether the statement of pass-through entity items on the entity's return is correct. The determination of pass-through entity items during a unified audit shall be made under the unified audit process which, except as specified in 830 CMR 62C.24A.1, shall supersede the assessment and abatement process otherwise applicable to members participating in the unified audit with respect to pass-through entity items.

(d) Notice of Proposed Adjustments. If, in the course of a unified audit, it appears to the Commissioner that the statement of pass-through entity items on the pass-through entity's return has been incorrectly reported, the Commissioner shall issue a Notice of Proposed Adjustments to the Tax Matters Partner.

(e) Conference May Be Requested Within 30 Days. The Tax Matters Partner or any Notice Member may, within 30 days after the date of the Commissioner's Notice of Proposed Adjustments, request a conference with the Commissioner with regard to proposed adjustments of pass-through entity items. In the event there is more than one request for a conference from the Tax Matters Partner or Notice Members, the Commissioner may arrange one joint conference which shall include all requesting parties.

(f) Settlement of Disputed Issues. At any time, the Commissioner and the Tax Matters Partner may, under M.G.L. c. 62C, § 37C, settle disputed issues that arise under the unified audit. Except to the extent that it provides otherwise, such a settlement is binding with respect to pass-through entity items on all members participating in the unified audit. See 830 CMR 62C.24A.1(4)(i) for treatment of a settlement agreement as a final determination of pass-through entity items.

(g) Notice of Determination. The Commissioner will, unless the Commissioner terminates the audit, issue a Notice of Determination of Pass-through Entity Items to the Tax Matters Partner after the later of:
1. 31 days after the issuance of the Notice of Proposed Adjustments; or

2. if a conference was requested, after the conclusion of the conference.

(h) Appeal. If any portion of the unified audit determination of a pass-through entity item is disputed, the Tax Matters Partner may petition the Appellate Tax Board for review of the determination within 60 days after the date of the Notice of Determination.

(i) Final Determination. In the event of a settlement as described in 830 CMR 62C.24A.1(4)(f), the settlement agreement shall be treated as a final determination except as otherwise provided in the agreement. If no petition is filed with the Appellate Tax Board as provided in 830 CMR 62C.24A.1(4)(h), the unified audit determination of pass-through entity items shall become a final determination on the day after the last date on which the pass-through entity may timely appeal the unified audit determination of pass-through entity items. If a timely petition is filed with the Appellate Tax Board, the determination of pass-through entity items shall become a final determination as adjudicated by the Appellate Tax Board or a court, as the case may be, on the later of:
1. the day after the last date on which the pass-through entity may timely appeal the Appellate Tax Board decision, or subsequent judicial decision, if no such appeal is taken; or

2. the day a final judicial decision is rendered if all appeals have been exhausted.

(5) Member Assessment Procedure; Contesting Computational Adjustments.

(a) Member Assessment Procedure: Notice of Computational Adjustment. After a unified audit determination of pass-through entity items becomes a final determination under 830 CMR 62C.24A.1(4)(i), the Commissioner shall adjust a member's return and assess any deficiency or reduce the member's tax liability to reflect the correct treatment of pass-through entity items by issuing a Notice of Computational Adjustment to each member participating in the unified audit. No such adjustment will be made for any member who has opted out of the unified audit under 830 CMR 62C.24A.1(6)(a), provided, however, that the provisions of 830 CMR 62C.24A.1(7) shall apply. The Notice of Computational Adjustment will generally describe how the adjusted tax liability amount was computed. Pass-through entity item adjustments, affected item computations, and penalties may be assessed by computational adjustment. The Commissioner is not required to issue a notice of intent to assess prior to assessment made through a computational adjustment.

(b) Contesting Computational Adjustment. A computational adjustment shall be treated as an assessment for purposes of M.G.L. c. 62C, § 37. A member subject to a computational adjustment may contest a computational adjustment resulting from a unified audit proceeding by filing an abatement application with the Commissioner within six months after the day on which the Notice of Computational Adjustment is sent to the member. Issues of law and fact with regard to pass-through entity items are deemed to have been conclusively determined in the unified audit proceeding.
1. The scope of an abatement application with regard to a computational adjustment is limited to the following:
a. determinations of clerical or arithmetic accuracy;

b. resolution of affected items to the extent of adjustment of such affected items due to changes in pass-through entity items; and

c. issues relating to the interplay between unified audit items and affected items.

2. Abatement applications are limited to items for which the period of limitations for abatements under M.G.L. c. 62C, § 37 is open.

(6) Procedures for a Member to Elect Not to Participate in Unified Audit; Commissioner's Treatment of a Member's Pass-through Entity Items as Non-unified Audit Pass-through Items.

(a) Procedures for a Member to Elect Not to Participate in Unified Audit. For any reason, a member of a pass-through entity may elect, in the manner provided in 830 CMR 62C.24A.1(6), not to participate in the unified audit of the pass-through entity.
1. Pass-through entity items for a member that has elected not to participate in a unified audit shall be treated as non-unified audit pass-through items.

2. In the case of a tiered structure, any member of a pass-through member that has elected not to participate in the unified audit shall be deemed to have elected not to participate in the unified audit. Accordingly, procedures that are applicable to a member electing not to participate shall also apply to a member of a pass-through member electing not to participate. Such a member may not choose to be included in the unified audit.

3. To elect not to participate in a unified audit the member shall so notify the Department in the manner designated by the Department and shall also notify the pass-through entity's Tax Matters Partner within 90 days after the date the Commissioner sends the Notice of Unified Audit regarding that pass-through entity. A pass-through member must notify all of its direct members that it is not participating in the unified audit and that the period of limitations for assessment or abatement of the non-unified audit pass-through items sourced to the entity subject to unified audit, as well as any affected items, will be as provided in 830 CMR 62C.24A.1(12)(b).

4. A member that does not timely notify the Commissioner that the member elects to be excluded from the unified audit may not later request to be excluded from the unified audit under 830 CMR 62C.24A.1(6).

5. A member that elects not to participate in the unified audit is not entitled to participate in any settlement agreement between the Commissioner and the pass-through entity with respect to the unified audit, nor in the case of any settlement is the Commissioner required to offer the member settlement terms equivalent to those obtained by other members. The Commissioner is not required to make adjustments indicated by the final determination to the returns of members who have elected not to participate in the unified audit.

(b) Commissioner's Treatment of a Member's Pass-through Entity Items as Non-unified Audit Pass-through Items. In the course of a unified audit, the Commissioner may, for efficient and effective enforcement of the revenue laws, treat all of a member's items originating with a pass-through entity as non-unified audit pass-through items. The items become non-unified audit pass-through items, subject to the administrative provisions of M.G.L. c. 62C without adjustment under M.G.L. c. 24A, as of the date the Commissioner so notifies the member. The Commissioner may elect to treat pass-through entity items as non-unified audit pass-through items for any reason. Among the situations in which the Commissioner may treat a member's items originating with a pass-through entity as non-unified audit pass-through items are instances in which the member:
1. is subject to a jeopardy assessment under M.G.L. c. 62C, § 29;

2. is under criminal investigation for violation of the income tax laws; or

3. is a debtor in a bankruptcy proceeding or a receiver has been appointed.

(7) Consequences of Unified Audit for Members, Pass-through Members and their Members, and Indirect Owners That Have Elected Not to Participate in the Unified Audit.

(a) Assessment of Non-unified Audit Pass-through Items and Affected Items. Generally, if the final determination of a unified audit indicates the likelihood of additional tax liability of a pass-through entity member that has elected under 830 CMR 62C.24A.1(6)(a) not to participate in the unified audit, the Commissioner may send such member, within the period of limitations for assessment, as extended under 830 CMR 62C.24A.1(7)(c), a Notice of Intent to Assess and a Notice of Assessment, under the procedures of M.G.L. c. 62C, § 26, with regard to any items open for assessment. In any such assessment, the Commissioner is not bound by the final determination of pass-through entity items made under the unified audit of the pass-through entity.

(b) Abatement Application by Non-participating Member. A member that has elected, or is deemed to have elected, not to participate in the unified audit, may, within the time periods provided in M.G.L. c. 62C, § 37, file an abatement application with regard to an assessment under 830 CMR 62C.24A.1(7)(a) provided, however, that the abatement amount shall be limited to tax attributed to adjustments of pass-through entity items of the audited pass-through entity, or changes to the member's affected items relating to such pass-through entity items, except to the extent that the period of limitations for abatement is open for other items.

(c) Period of Limitations for Assessment of Non-unified Audit Pass-through Items and Affected Items. The period of limitations is extended as provided in 830 CMR 62C.24A.1(12)(b) with respect to:
1. non-unified audit pass-through items; and

2. affected items.

(8) Relationship between Determinations of Tax in Unified Audits and in Member Audits. A determination of a member's tax liability in an audit of the taxpayer outside of the context of a unified audit does not bar any adjustment of a member's return, pursuant to a unified audit of a pass-through entity of which the taxpayer is a member, for unified audit items and affected items. Similarly, a unified audit of a pass-through entity does not bar any separate audit and assessment of any member of the pass-through entity with regard to items not included in the unified audit. Any assessment or reduction in tax resulting from the audit of a taxpayer outside of the context of a unified audit generally will be calculated and applied separately from any assessment or reduction in tax resulting from a unified audit.

(9) Notification of Unified Audit Proceedings by Commissioner.

(a) Notice of Unified Audit to Entity in Care of Tax Matters Partner. The Commissioner shall send a Notice of Unified Audit to the entity, at the address shown on the entity's return, in care of the Tax Matters Partner, to initiate the unified audit. The Commissioner shall send all subsequent notices affecting the pass-through entity solely to the Tax Matters Partner, who shall be responsible for communicating information to members.

(b) Information to Notice Members. Generally, the Commissioner will inform Notice Members of the unified audit proceedings within 60 days of the date the Notice of Unified Audit was sent to the Tax Matters Partner. The Commissioner may rely on the list of Notice Members timely provided by the Tax Matters Partner under 830 CMR 62C.24A.1(10)(d). The Commissioner's failure to provide, or a Notice Member's failure to receive, notice regarding the commencement of a unified audit shall not affect the rights, responsibilities, or restrictions applicable to Notice Members under M.G.L. c. 62C, § 24A and 830 CMR 62C.24A.1, or the validity of the unified audit proceeding.

(c) Notice of Proposed Adjustments. The Commissioner shall send the Notice of Proposed Adjustments to the Tax Matters Partner.

(d) Notice of Conference. The Commissioner shall send a Notice of Conference to the Tax Matters Partner.

(e) Notice of Determination. After the conclusion of a unified audit, the Commissioner shall send a Notice of Determination to the Tax Matters Partner.

(f) Notice of Computational Adjustment. The Commissioner shall send Notice of a Computational Adjustment as described in 830 CMR 62C.24A.1(5)(a) to each direct member affected by the computational adjustment, and to any indirect owner affected by the computational adjustment for which the Tax Matters Partner has provided the Commissioner with contact information. The Commissioner shall send Notices of Computational Adjustment to all indirect owners affected by the computational adjustment as they are identified in the course of the Commissioner's examination.

(10) Designation of Tax Matters Partner; Tax Matters Partner's Powers and Obligations; Other Pass-through Entity Notice Provisions.

(a) Designation of Tax Matters Partner. The Tax Matters Partner shall be designated according to the following procedures.
1. Partnerships. A partnership shall designate a Tax Matters Partner. Unless a partnership designates a different Tax Matters Partner for Massachusetts tax purposes, the Tax Matters Partner for a Massachusetts unified audit will be the same as the federal Tax Matters Partner. If the partnership has not designated a federal or Massachusetts Tax Matters Partner, the Tax Matters Partner shall be the general partner, managing member, or similar partner with primary management responsibility; or, if no member has primary management responsibility, the direct member having the largest profits interest in the partnership determined based on the year-end profits interests reported on the partnership return for the taxable year for which the determination is being made. If designation based on the largest profits interest is impracticable, the Commissioner shall select an interim Tax Matters Partner, pending selection of a Tax Matters Partner by the entity, and shall notify Notice Members of the selection.

2. S Corporations. An S corporation shall designate a Tax Matters Partner. The Tax Matters Partner must be a shareholder. If the S corporation does not designate a Tax Matters Partner, the Tax Matters Partner shall be the shareholder having the largest number of voting shares in the S corporation at the close of the taxable year involved, unless shareholders holding an aggregate of more than 50% of the S corporation voting shares designate a different Tax Matters Partner. If designation based on the largest voting shares interest is impracticable, the Commissioner shall select an interim Tax Matters Partner, pending selection of a Tax Matters Partner by the entity, and shall notify Notice Members of the selection.

3. Trusts. A trust that is a pass-through entity shall designate a Tax Matters Partner. If the trust does not designate a Tax Matters Partner, the trustee or fiduciary with authority over tax matters shall be the Tax Matters Partner. If no trustee or fiduciary has been specifically designated as having such authority, the trustees or fiduciaries shall designate the Tax Matters Partner according to the terms of the trust. If no Tax Matters Partner has been designated, the Commissioner shall select an interim Tax Matters Partner, pending selection of a Tax Matters Partner by the entity, and shall notify Notice Members of the selection.

4. Manner of Designating Tax Matters Partner: Future Guidance. The Tax Matters Partner shall be named on the pass-through entity's return for the tax year beginning on or after January 1, 2014. The Commissioner intends to issue guidance explaining how the pass-through entity should designate the Tax Matters Partner for tax years prior to the 2014 tax year that are subject to unified audit.

(b) Tax Matters Partner's Authority. The authority of the Tax Matters Partner includes the power to:
1. Receive tax notices;

2. Represent the pass-through entity's members during the unified audit proceeding and in administrative appeals with the Commissioner;

3. Enter into settlement agreements as provided in 830 CMR 62C.24A.1(4)(f);

4. File petitions with the Appellate Tax Board and pursue any subsequent judicial appeal with respect to a determination of pass-through entity items by the Commissioner; and

5. Enter into a written agreement with the Commissioner following the procedures under M.G.L. c. 62C, § 27, to extend the period of limitations for the conduct of a unified audit procedure and determination of pass-through entity items.

(c) Notice to Members: Partnership Agreement or Other Entity Agreement Controls. The Tax Matters Partner has the responsibility to provide notice to direct members of the pendency of the unified audit. Such notice shall be provided in the manner and to the extent required in the partnership or other agreement governing the pass-through entity and its members. Any pass-through member in a tiered structure shall provide such notice to its direct members in the manner and to the extent provided in its partnership or other entity agreement.

(d) Manner of Designating and Informing Commissioner of Notice Members. The Tax Matters Partner shall designate Notice Members and provide the Commissioner with a list of Notice Members no more than 30 days after the Commissioner issues the Notice of Unified Audit to the Tax Matters Partner. To be designated as a Notice Member, a direct member must have an interest in the profits of the pass-through entity of 1% or more for any of the years under audit. The Tax Matters Partner shall provide the Commissioner with the name, address, profits interest, and taxpayer identification number of each Notice Member, and shall certify that the direct member has a profits interest in the pass-through entity of 1% or more.

(e) Provision of Information to Commissioner Regarding All Members. After the Tax Matters Partner receives Notice of Unified Audit, the Tax Matters Partner is responsible for providing to the Commissioner an accurate list of all the pass-through entity's direct members' names, addresses, profits interests, and taxpayer identification numbers.

(f) Tax Matters Partner's or Other Member's Failure to Notify or Act Does Not Affect Validity of Unified Audit. The failure of the Tax Matters Partner or any other member to perform any the functions specified in 830 CMR 62C.24A.1 shall not affect the rights, responsibilities, or restrictions applicable to members under M.G.L. c. 62C, § 24A and 830 CMR 62C.24A.1, the validity of the unified audit, the determination of pass-through entity items, or adjustments of pass-through entity items and affected items with respect to all members participating in the unified audit.

(11) Period of Limitations for Notice of Determination Under Unified Audit.

(a) General Rule. Generally, the Commissioner shall begin a unified audit procedure and issue a Notice of Determination of pass-through entity items within three years after the date on which the entity's return for the taxable year was filed or the date it was required to be filed, whichever is later, taking extensions into account.

(b) Omission of More than 25% of Gross Income. If a pass-through entity omits from its gross income an amount properly includible therein which is in excess of 25% of the amount of gross income stated in the return, the Commissioner may begin a unified audit procedure and issue a Notice of Determination of pass-through entity items at any time within six years after the entity's return was filed.

(c) No Return; False or Fraudulent Return. If a pass-through entity fails to file a required return, or files a false or fraudulent return, there is no period of limitations for the Commissioner to begin a unified audit procedure and issue a Notice of Determination of pass-through entity items. The pass-through entity's failure to identify any direct member on the entity's return shall be deemed a false return with regard to that member.

(d) Agreement to Extend Period of Limitations for Notice of Determination. An extension of time to issue a Notice of Determination agreed to by the Tax Matters Partner binds the pass-through entity and all members, whether or not they are participating in the unified audit; any agreed-upon extension applies to all of the entity's pass-through entity items, including non-unified audit pass-through items, and all affected items of members. The Tax Matters Partner and the Commissioner may agree in writing to extend the period for Notice of Determination of tax at any time before the expiration of the initial period for Notice of Determination, and they may agree to extend the period further at any time by mutual consent before the extended deadline.

(12) Period of Limitations for Assessment of Members.

(a) General Rule. The period of limitations for assessment of a member as to any pass-through entity item, including non-unified audit pass-through items, or any affected item shall not expire with respect to that item before the latest of:
1. the date which is three years after the date on which the pass-through entity return for such taxable year was filed, or the last day for filing such return for that year, whichever is later;

2. one year after the date that the determination of pass-through entity items becomes a final determination; or

3. the final day of an assessment period otherwise applicable to the particular member.

(b) Non-unified Audit Pass-through Items. The period of limitations for assessment as to pass-through entity items that are treated as non-unified audit pass-through items, either because the member has elected or is deemed to have elected not to participate in the unified audit under 830 CMR 62C.24A.1(6)(a) or because the Commissioner has elected to treat all of a member's items originating with a pass-through entity as non-unified audit pass-through items, under 830 CMR 62C.24A.1(6)(b), and as to such member's affected items, shall not expire in any event before the end of the period of limitations specified in 830 CMR 62C.24A.1(12)(a).

(13) Consistency of Characterization of Pass-through Entity Items.

(a) Members Must Report Pass-through Entity Items Consistently with the Reporting by the Pass-through Entity. Every member required to file a return must, except as provided in 830 CMR 62C.24A.1(13)(b), report the share of each item originating with the pass-through entity on the member's tax return, including the amount, timing, and character of the item, in a manner that is consistent with the reporting of the item by the pass-through entity.

(b) Items Reported Inconsistently From the Pass-through Entity and Disclosed to the Commissioner; Electing Large Partnerships. Notwithstanding the requirement under 830 CMR 62C.24A.1(13)(a) that a member report items originating with the pass-through entity in the same manner as reported by the entity, a member may file inconsistently with the reporting of such items by the pass-through entity so long as the member files in good faith and with reasonable cause and files a taxpayer disclosure statement with the member's return in the manner prescribed by the Commissioner, identifying each item on the member's return that is treated inconsistently with its treatment on the entity's return. However, a partner of an electing large partnership under Internal Revenue Code section 775 must always treat a pass-through entity item in a manner that is consistent with the treatment of the item on the partnership return.

(c) Penalties for Failure to Disclose Inconsistent Treatment. Penalties that may be applicable to any member who fails to clearly identify to the Commissioner a known inconsistently reported pass-through entity item on the member's return include, without limitation, a penalty for intentional or negligent disregard of rules and regulations under M.G.L. c. 62C, § 35A, and penalties for filing a false or fraudulent return under M.G.L. c. 62C, § 28.

(d) Incorrect Information. A direct member that reports an item originating with the source pass-through entity inconsistently with the source pass-through entity's reporting of such items to the Commissioner, based on incorrect information furnished to the member by the source pass-through entity, is deemed to have reported the item consistently if the member reports it in the same manner as the source pass-through entity reported the information to the direct member and the direct member reasonably relies, in good faith, on the source pass-through entity's reporting of such items.

(e) Reporting of Pass-through Entity Items by Indirect Owners Deemed Consistent if Reasonably Reported According to Indirect Owner's Information. An indirect owner is deemed to report an item consistently with the reporting of the item by the source pass-through entity if the indirect owner reports the item, in good faith and in reasonable reliance on the information provided to the indirect owner, in the same manner as the pass-through member reported the information to the indirect owner, even if the pass-through member did not report the pass-through entity item consistently with the reporting of the item by the source pass-through entity. In such case the indirect owner may be subject to a computational adjustment but the inconsistency generally will not subject the indirect owner to the penalties described in 830 CMR 62C.24A.1(13)(c).

(f) No Pass-through Entity Return; No Member Return. A member of a pass-through entity where the entity files no return may be subject to a computational adjustment even if the member is unaware of the entity's failure to file a return. A member may be subject to a computational adjustment with regard to pass-through entity items whether or not the member has filed a return.

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