Current through Register 1531, September 27, 2024
(1)
Statement of Purpose and
Application.
(a) The purpose of
830 CMR 62C.33.1 is to describe the computation of interest and penalties under
M.G.L. c. 62C and interest on refunds of tax. It is not intended as an
exhaustive treatment of all penalties administered by the Commissioner. 830 CMR
62C.33.1 also explains the manner in which the Commissioner will apply a
payment received from a taxpayer to tax, penalties or interest in the absence
of instruction from the taxpayer, and the mechanism by which a taxpayer may
direct the Commissioner to apply a voluntary payment made by the taxpayer to
one or more of the taxpayer's outstanding liabilities. Except as otherwise
provided, the provisions of 830 CMR 62C.33.1 apply to the taxes imposed under
M.G.L. chs. 60A; 62 through 65C; 121A, § 10; and 138, § 21, and to
any other provisions of the law under which the Commissioner is authorized
generally to exercise his powers under M.G.L. c. 62C.
(b)
Organization.
830 CMR 62C.33.1 is organized as follows:
1.
Statement of Purpose and Application
2. Definitions
3. Determination of Interest Rate on Unpaid
Taxes
4. Interest on Unpaid
Taxes
5. Penalties
6. Interest on Penalties
7. Interest on Refunds of
Overpayments
8. Methods for
Directing Payment
9. Application of
Payments in the Absence of Taxpayer Instruction
(2)
Definitions. For
the purposes 830 CMR 62C.33.1, the following words have the following meanings
unless the context requires otherwise.
Adequate Disclosure, submission of a
written statement setting out the relevant facts including, without limitation,
the basis for the challenge and identifying the tax law or public written
statement being challenged. Such disclosure shall be made in a manner that the
Commissioner may prescribe or otherwise approve.
Amount of Tax Required to be Shown,
the proper amount of tax ultimately determined to have been due on the
statutory due date for the complete tax period covered by a return.
Amount of Tax Shown, the amount of tax
that a taxpayer reports on a return as due for the complete tax period covered
by the return.
Assessment, the act of determining or
verifying the amount of tax due from a taxpayer and the entry of such amount on
the Commissioner's assessment records, including the acceptance of a taxpayer's
calculations and declarations of tax as reported on a proper return duly filed
by the taxpayer with the Commissioner.
Commissioner, the Commissioner of
Revenue or the Commissioner's authorized designee.
Date Prescribed for Payment, the last
day on which the tax is required to be paid under the governing statute or
regulation, including any valid extensions of time to pay that are granted by
the Commissioner.
Department, the Department of
Revenue.
Disregard, includes any careless,
reckless, or intentional disregard of the tax laws of the Commonwealth or the
Commissioner's public written statements.
Inconsistent Filing Position, a
taxpayer is deemed to have taken an inconsistent filing position when the
taxpayer pays less tax in Massachusetts based upon an interpretation of
Massachusetts law that differs from the position taken by the taxpayer in
another state where the taxpayer files a return and the governing law in that
other state is the same in all material respects as the Massachusetts
law.
Interest, the daily and cumulative
charge against a taxpayer authorized by M.G.L. c. 62C, § 32, for failing
to pay an amount of tax on or before the statutory due date or failing to pay a
penalty that has accrued or been assessed. Interest accruing before January 1,
1993 was simple interest. Interest accruing on or after January 1, 1993
compounds daily.
Involuntary Payment, any payment
received by agents of the Commonwealth as a result of distraint or levy or from
a legal proceeding in which the Commonwealth is seeking to collect its
delinquent taxes, interest, or penalties, or has filed a claim therefor.
Payments made pursuant to claims filed in bankruptcy liquidation or
reorganization proceedings are involuntary payments.
Listed Abusive Transactions or
Strategies, items as defined in 830 CMR 62C.33.1(5)(k).
Month or Monthly Period, the period
beginning on the statutory due date or the date prescribed for payment,
whichever is applicable, and ending in the succeeding calendar month on the
date numerically corresponding to such statutory due date or date prescribed
for payment, including any valid extensions, and each such successive
corresponding period thereafter. If, in any succeeding calendar month, there is
no date numerically corresponding to the date prescribed for payment, then the
last day of such succeeding calendar month is the end of that monthly
period.
Negligence, includes any failure to
make a reasonable attempt to comply with the tax laws of the Commonwealth or
the Commissioner's public written statements (other than letter rulings, unless
issued to the same taxpayer).
Notice of Intention to Assess, the
notice to a taxpayer required by M.G.L. c. 62C, § 26, that the
Commissioner intends to assess tax not previously assessed or deemed to be
assessed.
Notice of Assessment, the notice to a
taxpayer required by M.G.L. c. 62C, § 31, that the Commissioner has made
an assessment of tax.
Penalty, a charge under M.G.L. chs.
60A, 62 through 65C, 121A or l38, for failing to perform an act required by the
governing statute or regulation or for performing an act prohibited by the
governing statute or regulation.
Realistic Possibility of Being Sustained on its
Merits, with respect to a position taken on a return or claim for
abatement or refund, a position that upon a reasonable and well-informed
analysis by a person knowledgeable in the tax law would lead such a person to
conclude that the position has approximately a one in three, or greater,
likelihood of being sustained on its merits.
Reasonable Basis, a return position
has a reasonable basis if it premised on statutory or regulatory authority,
public written statement, and/or court cases (taking into account the relevance
and persuasiveness of the authorities, and subsequent developments). The term
will be interpreted in a manner consistent with Treas. Reg. §
1.6662-3(b)(3).
Return, a taxpayer's declaration of
tax due, including all schedules and attachments, completed by the taxpayer on
a form or in a manner prescribed as a return by the Commissioner.
Return Preparer, any person who is
engaged in the business of preparing, or providing services in connection with
the preparation of returns of tax or any claim for refund of tax imposed by the
Internal Revenue Code and/or the Massachusetts General Laws, or any person who
for compensation prepares any such return for any other person. A person who
only gives advice on specific issues of law shall only be considered a return
preparer under the circumstances set out in Treas. Reg.
§301.7701-15(a)(2).
Statutory Due Date, the last day on
which a return is required to be filed under the governing statute or
regulation, without regard to any extensions.
Substantial Authority, a return
position is supported by substantial authority only if the weight of the
authorities supporting the position is substantial in relation to the weight of
authorities supporting the contrary position. The term will be interpreted in a
manner consistent with Treas. Reg. § 1.6662-4(d)(2).
Substantial Understatement of
Liability, an understatement for any tax period that exceeds the
greater of 10% of the tax required to be shown on the return or $1,000.
Tax, without limitation any tax or
excise imposed under the following provisions: M.G.L. chs. 60A and 62 through
65C, 121A, § 10; 138, § 21 and assessments imposed pursuant to M.G.L.
62C, § 28.
Taxpayer, any person (or the agent or
representative of such person) required to file a return or required to pay a
tax under M.G.L. c. 62C.
Underpayment, with respect to any tax
governed by the provisions of M.G.L. c. 62C, the difference between the amount
of tax required to be shown on a return and a lesser amount paid in connection
with that return.
Valid Extension of Time to File, in
the case of a return required by M.G.L. c. 62C, §§ 11 or 12, an
extension of time to file the return granted by the Commissioner where 50% of
the amount required to be shown on the return is paid on or before the date
prescribed for payment; in the case of any other return, an extension of time
to file the return granted by the Commissioner where 80% of the amount required
to be shown on the return is paid on or before the date prescribed for
payment.
Valid Extension of Time to Pay, an
extension of time to pay the tax granted by the Commissioner pursuant to M.G.L.
c. 65C, § 10.
(3)
Determination of Interest Rate on Unpaid Taxes.
(a)
General.
Interest accrues on or after January 1, 1993, at the federal short term rate
plus four percentage points, and compounds daily. The federal short term rate
is determined quarterly and is based on the average yield of outstanding
federal obligations with a maturity date of three years or less.
See IRC §§ 6621(b) and 1274(d). The short term rate
is set for the first month of each calendar quarter and takes effect in the
first month of the next quarter. The Department of Revenue will announce the
applicable Massachusetts rate on a quarterly basis.
(b)
Daily Rate.
Interest accrues daily on unpaid taxes, interest, and penalties, as described
in 830 CMR 62C.33.1. The daily rate can be determined by dividing the quarterly
rate described in 830 CMR 62C.33.1(3)(a) by the number of days in the
year.
(c)
Compounding. Interest will accrue daily on unpaid
interest balances (i.e., will compound daily) until all
accrued interest has been paid in full. Interest will continue to compound
until paid even if the underlying liabilities for tax or penalties have been
paid.
(4)
Interest on Unpaid Taxes.
(a)
General Rule. If
any amount of tax is not paid in full on or before the statutory due date of
the return, interest accrues prior to January 1, 1993 on the unpaid tax at the
rate of 18% per annum, or such other rate as may be prescribed
by M.G.L. c. 62C, § 32. Interest accrues on or after January 1, 1993 on
unpaid taxes and penalties at the rate described in 830 CMR 62C.33.1(3). In
situations where a taxpayer has underpaid tax prior to January 1, 1993, the
taxpayer's account will be calculated using the former interest rate through
December 31, 1992, and the new rate applied to any balance of tax and penalty
on and after January 1, 1993, regardless of when the underlying liability was
incurred or when the tax was assessed.
(b)
Interest Computation on
Notice of Assessment. Generally, interest is computed on a daily
basis on unpaid tax from the statutory due date of the return to and including
the date of full payment of the tax. However, if the Commissioner makes an
assessment of tax, including double assessments under M.G.L. c. 62C, § 28,
and issues a Notice of Assessment, interest on the assessed tax is computed
from the statutory due date of the return to and including the
30th day following the date of Notice of Assessment,
even if payment in full is made prior to such 30th
day. If the tax, or any portion thereof, is not paid by the
30th day following the Notice of Assessment,
interest again accrues on a daily basis until the tax is paid in
full.
(c)
Abatement of
Interest. The Commissioner may not abate assessed or accrued
interest unless the underlying tax on which the interest is computed is also
abated.
(5)
Penalties.
(a)
Penalty Under M.G.L. c. 62C, § 28 for Failure to File or
Filing of Incorrect Return.
1.
General Rule. Assessment of penalties under M.G.L. c.
62C, § 28 shall be governed by the provisions of
830 CMR 62C.26.1(13) and
(14).
2.
Abatement of
Penalty. The Commissioner shall not abate the tax below double the
amount for which the person assessed was properly taxable if such person files
a fraudulent return; or, having filed an incorrect or insufficient return
fails, after notice, to file a proper return unless the taxpayer can
affirmatively demonstrate that there was reasonable cause for the lack of a
response or for the late response.
(b)
Penalties under M.G.L. c.
62C, § 30 for Failure to Report Federal Income Tax Changes and under
M.G.L. c. 62C, § 30A for Failure to Report Changes in Taxes Due in Certain
Other Jurisdictions.
1.
General Rule. Assessment of penalties under M.G.L. c.
62C, § 30 shall be governed by the provisions of
830
CMR 62C.30.1. Penalties under M.G.L. c. 62C,
§ 30A shall be governed by the provisions of
830
CMR 62C.30A.1. Other penalties in addition to
those imposed under
830
CMR 62C.30.1 and
830
CMR 62C.30A.1 may apply.
2.
Abatement of
Penalty. Abatement of any penalty imposed for failure of a person
or an estate to report to the Commissioner a change in federal personal or
corporate taxable income or federal taxable estate as a result of a final
determination by the federal government that such income or estate is different
from that originally reported shall be governed by the provisions of
830
CMR 62C.30.1(7)(b).
Abatement of any penalty imposed for failure of a person to report to the
Commissioner a change in tax due to any other state, territory or possession of
the United States, or the Dominion of Canada or any of its provinces, on
account of any item of gross income of a Massachusetts resident, where such tax
is finally determined on or after December 8, 2005 by that jurisdiction to be
less than the tax previously reported, and where such tax was the basis for a
credit claimed by the Massachusetts resident under M.G.L. c. 62, § 6(a)
shall be governed by the provisions of
830
CMR
62C.30A.1(7)(b).
(c)
Penalty Under M.G.L. c. 62C,
§ 33(a), for Failure to File Timely.
1.
General Rule. A
taxpayer who fails to file a return on or before either the statutory due date
of the return or the last day of a valid extension of time to file the return,
whichever date is later, is subject to a penalty under M.G.L. c. 62C, §
33(a). The penalty is 1% of the amount of tax required to be shown on the
return, and is computed for each month or fraction of a month during which the
taxpayer's failure to file the return continues, subject to the limitations in
830 CMR 62C.33.1(5)(c)5.
2.
Application of Penalty to Returns. The penalty under
M.G.L. c. 62C, § 33(a), is computed only on tax imposed by M.G.L. chs.
60A; 62 through 65C, including double tax assessments under 62C, § 28;
121A, § 10; and 138, § 21; but not on estimated taxes imposed under
M.G.L. c. 62B or 63B.
3.
Extensions of Time to File Returns. In order to be
valid, a request for an extension to file a return must meet the requirements
set out in
830 CMR
62C.19.1. Generally, a return required by
M.G.L. c, 62C, §§ 11 or 12 must include at least 50% of the tax due
and a request for an extension to file any other return required by M.G.L. c.
62C must include at least 80% of the tax due. The following rules apply when a
taxpayer obtains an extension of time to file a return:
a. if the taxpayer obtains a valid extension
of time to file and files the return within the time allowed by the extension,
the M.G.L. c. 62C, § 33(a) penalty does not apply;
b. if the taxpayer obtains a valid extension
of time to file but does not file the return within the time allowed by the
extension, the M.G.L. c. 62C, § 33(a) penalty is computed beginning as of
the last day of the extension; and
c. if the taxpayer files an application for
extension that does not meet the requirements for obtaining a valid extension
of time to file, the extension is void and the M.G.L. c. 62C, § 33(a)
penalty is computed beginning as of the statutory due date of the return, as if
the taxpayer had not filed for any extension.
4.
Computation on Unpaid Portion
of Amount Required to be Shown. The amount of tax required to be
shown on a return is the proper amount of tax ultimately determined to have
been due on the statutory due date for the complete period covered by the
return. The amount required to be shown consists of both unreported tax
determined by the Commissioner to have been due, as well as the tax that is
properly reported by the taxpayer as having been due. The penalty under M.G.L.
c. 62C, § 33(a), is computed each month on the amount of tax required to
be shown on the return, less any portion of the tax that was paid on or before
the due date, and less any credits against the tax which are allowable on the
return.
5.
Limitation
on Amount of Penalty. The penalty under M.G.L. c. 62C, §
33(a), ceases to accrue when any of the following events occurs:
a. the return is filed;
b. the aggregate M.G.L. c. 62C, § 33(a)
penalty totals 25% of the amount of tax required to be shown on the return,
less any portion of the tax that was paid on or before the due date, and less
any credits against the tax which are allowable on the return; or
c. the taxpayer fails to file a return and
the Commissioner makes an assessment of tax for the tax period that would have
been covered by the return.
6.
Effect of Assessment When a
Taxpayer Fails to File. If, as a result of a taxpayer's failure to
file a return, the Commissioner makes an assessment of the tax, the
Commissioner's assessment is deemed to be the taxpayer's filing of the return.
The M.G.L. c. 62C, § 33(a) penalty is computed on an amount equal to the
unpaid tax assessed by the Commissioner, from the due date of the return until
the first of the three events identified in 830 CMR 62C.33.1(5)(c)5. takes
place.
7.
Waiver or
Abatement of Penalty. The Commissioner may waive or abate the
penalty imposed under M.G.L. c. 62C, § 33(a), if the Commissioner finds
that a taxpayer's failure to file timely was due to reasonable cause and not
willful neglect. A taxpayer seeking an abatement of the penalty must present
specific facts establishing that its failure to file timely was due to
reasonable cause. A mere assertion, by affidavit or otherwise, that the failure
to file timely was reasonable or excusable due to oversight or inadvertence is
not sufficient to establish reasonable cause.
(d)
Penalty Under M.G.L. c. 62C,
§ 33(b), for Failure to Pay Tax Timely.
1.
General Rule. A
taxpayer who fails to pay a tax on or before the date prescribed for payment is
subject to a penalty under M.G.L. c. 62C, § 33(b). The penalty is 1% of
the unpaid amount of tax shown on the return, and is computed for each month or
fraction of a month during which the taxpayer's failure to pay the tax
continues, subject to the limitations in 830 CMR 62C.33.1(5)(d)5.
2.
Application of Penalty to
Taxes. The penalty under M.G.L. c. 62C, § 33(b), is computed
only on amounts of tax imposed by M.G.L. chs. 60A; 62 through 65C, including
doubled tax assessments under 62C, § 28; 121A, § 10; and 138, §
21; but not on estimated taxes imposed under M.G.L. c. 62B or 63B.
3.
Extensions of Time to Pay
Tax. The following rules apply when a taxpayer obtains a valid
extension of time to pay the tax:
a. if the
taxpayer obtains a valid extension of time to pay and pays the tax within the
time allowed by the extension, the M.G.L. c. 62C, § 33(b) penalty does not
apply;
b. if the taxpayer obtains a
valid extension of time to pay but does not pay the tax within the time allowed
by the extension, the M.G.L. c. 62C, § 33(b) penalty is computed beginning
as of the last day of the extension; and
c. if the taxpayer files an application for
extension that does not meet the requirements for obtaining a valid extension
of time to pay the tax, the extension is void and the M.G.L. c. 62C, §
33(b) penalty is computed as of the statutory due date of the return, as if the
taxpayer had not filed for any extension.
4.
Computation on Amount of Tax
Shown on Return. The amount of tax shown on a return is the total
amount of tax reported by the taxpayer as due for the complete period covered
by the return. The penalty under M.G.L. c. 62C, § 33(b), is computed each
month on the amount of tax shown on the return, less any portion of the tax
that is paid at any time prior to the first day of the month for which it is
computed.
5.
Limitation
on Amount of Penalty. The penalty under M.G.L. c. 62C, §
33(b), ceases to accrue if any of the following events occurs:
a. the taxpayer pays the full amount of tax
shown on the return;
b. the
aggregate M.G.L. c. 62C, § 33(b) penalty totals 25% of the amount of tax
shown on the return;
c. the
taxpayer and the Commissioner execute a written settlement agreement under
M.G.L. c. 62C, § 37A, which provides that the M.G.L. c. 62C, § 33(b)
penalty ceases to accrue; or the taxpayer and the Commissioner execute a
written payment agreement which provides that the M.G.L. c. 62C, § 33(b)
penalty ceases to accrue.
6.
Effect of Assessment When a
Taxpayer Fails to File. If, as a result of a taxpayer's failure to
file a return, the Commissioner makes an assessment of the tax, the
Commissioner's assessment is deemed to be the taxpayer's filing of the return.
The M.G.L. c. 62C, § 33(b) penalty is computed on the amount of unpaid tax
assessed by the Commissioner, and is computed beginning as of the statutory due
date of the return.
7.
Waiver or Abatement of Penalty. The Commissioner may
waive or abate the penalty imposed under M.G.L. c. 62C, § 33(b), if the
Commissioner finds that a taxpayer's failure to pay the tax timely was due to
reasonable cause and not willful neglect. A taxpayer seeking an abatement of
the penalty must present specific facts establishing that its failure to pay
timely was due to reasonable cause. A mere assertion, by affidavit or
otherwise, that the failure to pay timely was reasonable or excusable due to
oversight or inadvertence is not sufficient to establish reasonable
cause.
(e)
Penalty Under M.G.L. c. 62C, § 33(c), for Failure to Pay
Assessment Timely.
1.
General Rule. A taxpayer who fails to pay an
assessment of tax not reported on a return within 30 days following the date of
the Commissioner's Notice of Assessment, is subject to a penalty under M.G.L.
c. 62C, § 33(c). The penalty is 1% of the unpaid assessed tax stated in
the Notice of Assessment, and is computed, beginning as of the
30th day following the date of the Notice of
Assessment, for each month or fraction of a month during which the taxpayer's
failure to pay the assessment continues, subject to the limitations in 830 CMR
62C.33.1(5)(e)4.
2.
Application of Penalty to Taxes. The penalty under
M.G.L. c. 62C, § 33(c), is computed on all taxes imposed by M.G.L. chs.
60A; 62 through 65C, including double assessments of tax under M.G.L. c. 62C,
§ 28; 121A, § 10; and 138, § 21; but not on estimated taxes
imposed under M.G.L. c. 62B or 63B.
3.
Computation on Assessed Tax in
Notice. The penalty under M.G.L. c. 62C, § 33(c), is computed
each month on the amount of tax, including assessments under M.G.L. c. 62C,
§ 28, stated in the Notice of Assessment, less any portion of that tax
that is paid prior to the first day of the month for which it is
computed.
4.
Limitation
on Amount of Penalty. The penalty under M.G.L. c. 62C, §
33(c), ceases to accrue if any of the following events occur:
a. the taxpayer pays the full amount of
assessed tax stated in the Notice of Assessment;
b. the aggregate M.G.L. c. 62C, § 33(c)
penalty totals 25% of the amount of assessed tax stated in the Notice of
Assessment;
c. the taxpayer and the
Commissioner execute a written settlement agreement under M.G.L. c. 62C, §
37A which provides that the M.G.L. c. 62C, § 33(c) penalty ceases to
accrue; or the taxpayer and the Commissioner execute a written payment
agreement which provides that the M.G.L. c. 62C, § 33(c) penalty ceases to
accrue.
5.
Abatement of Penalty. The Commissioner may abate the
penalty imposed under M.G.L. c. 62C, § 33(c), if the Commissioner finds
that a taxpayer's failure to pay the assessment timely was due to reasonable
cause and not willful neglect. A taxpayer seeking an abatement of the penalty
must present specific facts establishing that its failure to pay the assessment
timely was due to reasonable cause. A mere assertion, by affidavit or
otherwise, that the failure to pay timely was reasonable or excusable due to
oversight or inadvertence is not sufficient to establish reasonable
cause.
(f)
Penalty Under M.G.L. c. 62C, § 35, for Tender of Worthless
Check or Electronic Funds Transfer.
1.
General Rule. A
taxpayer who submits a check or electronic funds transfer in payment of any
tax, interest, penalty, fee or other charge, which check or electronic funds
transfer is not duly paid, shall be subject to penalty under M.G.L. c. 62C,
§ 35. The penalty is an amount equal to 2% of the amount of such check or
electronic funds transfer; provided, however, that if the amount of such check
or transfer is less than $1,500, the penalty shall be $30 or the amount of such
payment, whichever is less.
2. The
Commissioner has discretion to abate any penalty assessed pursuant to M.G.L. c.
62C, § 35 for payment of any tax, interest, penalty, fee or other charge
by a check or electronic funds transfer which is not duly paid. A mere
assertion, by affidavit or otherwise, that the failure to properly tender the
check or transfer was reasonable or excusable due to oversight or inadvertence
is not sufficient to establish reasonable cause.
(g)
Penalty Under M.G.L. c. 62C,
§ 35A, for Negligence or Substantial Understatement of Tax.
1.
General Rule. A
taxpayer who files a return on or after December 8, 2005 which reflects an
underpayment of tax required to be shown on such return and which is
attributable to negligence or disregard of the tax laws of the Commonwealth or
of public written statements issued by the Commissioner (other than a letter
ruling, unless issued to the same taxpayer) or is attributable to a substantial
understatement of liability shall be subject to a penalty under M.G.L. c. 62C,
§ 35A. The penalty shall be an amount equal to 20% of the portion of the
underpayment to which M.G.L. c. 62C, § 35A applies.
2.
Limitation on Amount of
Penalty. The penalty under M.G.L. c. 62C, § 35A is limited by
the following provisions:
a. The amount of an
understatement will be reduced by any portion of the understatement
attributable to a position supported by substantial authority or if the
relevant facts and basis for the position are adequately disclosed in the
return and there is a reasonable basis for the return position. However, these
mitigating factors are inapplicable in the case of listed abusive transactions
or strategies as noted in 830 CMR 62C.33.1(5)(k).
b. A penalty under M.G.L. c. 62C, § 35A
may not be imposed with respect to any portion of an underpayment if it is
shown there was reasonable cause for such portion and the taxpayer acted in
good faith.
(h)
Penalty Under M.G.L. c. 62C, § 35C, for Return
Preparers.
1.
General Rule for Penalty Under M.G.L. c. 62C, §
35C(a). A person who is a return preparer with respect to a return
or claim for abatement or refund is subject to a $1,000 penalty for a position
taken on such return or claim for abatement or refund filed on or after
December 8, 2005 where the position had no realistic possibility of being
sustained on its merits and the facts of the item at issue and basis for the
position were not disclosed or the position taken was frivolous.
2.
Period for
Assessment. A penalty under M.G.L. c. 62C, § 35C(a) may be
assessed within three years after the return or claim is filed.
3.
Waiver or Abatement of
Penalty. The Commissioner may waive or abate a penalty under
M.G.L. c. 62C, § 35C(a) if the return preparer can demonstrate reasonable
cause and not willful neglect. An application for abatement may be filed up to
three years from the time such penalty is paid.
4.
General Rule for Penalty Under
M.G.L. c. 62C, § 35C(b). Where any part of an understatement
on a return or a claim for refund or abatement filed on or after December 8,
2005 is due to a willful attempt by the return preparer to understate a tax
liability or results from the preparer's careless, reckless or intentional
disregard of the Commonwealth's tax laws or the Commissioner's public written
statements (other than a letter ruling, unless issued to the same taxpayer),
the preparer shall be subject to a penalty equal to the greater of $1,000 or
10% of the tax attributable to such understatement, provided that where
penalties under M.G.L. c. 62C, § 35C(a) and (b) are applicable to the same
return or claim, the penalty under M.G.L. c. 62C, § 35C(b) will be reduced
by the amount of the penalty imposed under M.G.L. c. 62C, §
35C(a).
5.
Period for
Assessment. A penalty under M.G.L. c. 62C, § 35C(b) may be
assessed against the return preparer at any time.
6.
Abatement of
Penalty. An application for abatement of a penalty under M.G.L. c.
62C, § 35C(b) may be filed within two years from the time the assessment
was made.
7.
Standard
for Careless, Reckless or Intentional Disregard. A return preparer
will not be considered to have carelessly, recklessly or intentionally
disregarded a tax law or public written statement if the position taken on the
return or claim is adequately disclosed; and either in the case of a return,
has a realistic possibility of being sustained on the merits, or in the case of
a claim for abatement or refund, is not frivolous.
(i)
Penalty Under M.G.L. c. 62C,
§ 35D for Inconsistent Filing Positions.
1.
General Rule. A
taxpayer must disclose any inconsistent filing position when it files returns
under M.G.L. c. 63 and M.G.L. c. 62 on or after December 8, 2005. If such
inconsistent filing position is not disclosed, the taxpayer will be subject to
a penalty equal to the amount of tax attributable to the inconsistency. This
penalty under M.G.L. c. 62C, § 35D is in addition to any other penalties
that may apply.
Example 1: A foreign corporation doing
business in Massachusetts sells the stock of a subsidiary. The corporation's
commercial domicile is in another state. The corporation claims there was no
unitary business relationship between it and the subsidiary and therefore does
not apportion the gain from the sale in reporting income for Massachusetts
corporate tax purposes. Rather, the corporation allocates the gain from the
sale of the subsidiary to its state of commercial domicile, and it reports the
gain in a consistent manner in its state of commercial domicile. The
corporation is not subject to the penalty for an inconsistent filing
position.
Example 2: The facts are the same as
in Example 1 except that the corporation treats the gain from the sale of its
subsidiary as apportionable income in its state of commercial domicile and does
not report the inconsistency in reporting income for Massachusetts corporate
tax purposes. The law in the corporation's state of commercial domicile is the
same in all material respects. The corporation is subject to the penalty for an
inconsistent filing position.
2.
Waiver or Abatement of
Penalty. The Commissioner may waive or abate a penalty under
M.G.L. c. 62C, § 35D if the inconsistent filing position or failure to
disclose was attributable to reasonable cause and not willful neglect. A mere
assertion, by affidavit or otherwise, that the inconsistent filing position or
failure to disclose was reasonable or excusable due to oversight or
inadvertence is not sufficient to establish reasonable cause.
(j)
Penalty Under
M.G.L. c. 62C, § 35E for Promoters of Abusive Tax Shelters.
1.
General Rule.
Where a person (hereinafter a "promoter") organizes or assists in the
organization of a plan or arrangement or the sale of a plan or arrangement and
makes or furnishes or causes another person to make or furnish a statement with
respect to the allowability of a deduction or credit, the excludability of
income, or the securing of any other tax benefit, including the avoidance of a
filing requirement, which tax benefit the promoter knows or has reason to know
is false, fraudulent, or deliberately misleading as to any material matter, the
promoter shall pay a penalty equal to $5,000, or, if the promoter establishes
that it is lesser, 100% of the gross income derived or to be derived from the
proscribed activity.
2.
Applicability. Imposition of the penalty under M.G.L.
c. 62C, § 35E applies with respect to each taxpayer to whom the promoter
makes an offending statement. Without limitation, the Commissioner may apply
the penalty under M.G.L. c. 62C, § 35E to persons subject to penalty under
Internal Revenue Code § 6700, whether or not such penalty has been
imposed, where such activities affect tax returns required to be filed with the
Commissioner, as well as to persons promoting plans or arrangements with
respect to asserted benefits that are specific to state taxes.
3.
Period for
Assessment. A penalty under M.G.L. c. 62C, § 35E may be
assessed within six years after the offending statement is made.
4.
Abatement of
Penalty. An application for abatement of a penalty under M.G.L. c.
62C, § 35E may be filed within two years from the time the assessment was
made.
(k)
Listed Abusive Transactions or Strategies. The
Department may apply the relevant penalty provisions to abusive plans or
arrangements including, but not limited to, "listed transactions" as defined by
the Internal Revenue Service ("IRS") in Treasury Regulation §
1.6011-4(b)(2) as warranted.
In addition to federally "listed transactions" the Commissioner
reserves the right to identify, by public written statement, abusive
transactions or tax strategies to which the relevant penalties will
apply.
(6)
Interest on Penalties.
(a)
General Rule. On
or after January 1, 1993, interest accrues on unpaid penalties as well as
unpaid tax at the federal short term rate plus four percentage points,
compounded daily.
(b)
Period for Computing Interest. Interest accrues on the
failure to file penalty under M.G.L. c. 62C, § 33(a), starting on the
later of the statutory due date or the last day of a valid extension of time to
file the return, and continuing to the date of the payment of the penalty, and
on failure to pay penalties under M.G.L. c. 62C, §§ 33(b) and 33(c),
starting 31 days after the notice of assessment and continuing to the date of
full payment of the penalty amounts.
(c)
Abatement of
Interest. The Commissioner may not abate assessed or accrued
interest on penalties unless the underlying penalty on which the interest is
computed is abated.
(7)
Interest on Refunds of Overpayments.
(a)
General Rule.
Effective July 1, 2003, the interest rate on refunds of overpayments is the
federal short-term rate plus two percentage points, simple interest. For the
period from January 1, 1993 until June 30, 2003, interest on a refund of an
overpayment will be paid at the federal short term rate determined under §
6621(b) of the Internal Revenue Code, as amended and in effect for the taxable
year, plus four percentage points, compounded daily.
(b)
Period for Computing Interest
for Abatement Applications filed before July 1, 2003. Interest is
computed from the due date of the applicable return without regard to
extensions, or date of receipt of the overpayment, or the date of filing of the
return, whichever is later, to a date no more than 30 days before the issuance
of the refund.
(c)
Interest on Abatements for Abatement Applications filed on or after
July 1, 2003. Interest will be calculated on any tax, interest or
penalty refunded from the date of receipt of a completed and fully
substantiated abatement application.
(d)
Interest on Denied
Abatements. In a case in which the Commissioner has denied an
abatement application based upon incomplete supporting information, no interest
under M.G.L. c. 62C, § 40 shall begin to accrue upon any such claim which
is appealed to the appellate tax board or to a probate court under M.G.L. c.
62C, § 39 before the date on which a decision on such claim on the merits
is rendered by the board or court in favor of the taxpayer unless the board or
the court, whichever the case may be, expressly holds that interest shall begin
to accrue from an earlier date as it sees fit.
(e)
Interest Where Return Does
Not Agree with Information from Third Party Sources or DOR
Records. For returns filed on or after July 1, 2003, no interest
will be paid on refunds of overpayments of tax if the return as filed requires
correction of the tax liability by the Department based on information from
third party sources or Department records.
Example: A taxpayer files a return
reflecting a tax due of $500. However, the return was prepared based upon a
Form W-2 that overstated the taxpayer's wages. A corrected Form W-2 from the
taxpayer's employer was subsequently submitted, and the return as adjusted for
the corrected W-2 reflected an overpayment. No interest on the resulting refund
will be paid.
(8)
Methods for Directing Payment.
(a)
General Rule. A
taxpayer may not direct involuntary payments. A taxpayer may direct the
Commissioner to apply the taxpayer's voluntary payment to one or more specific
assessments or anticipated assessments of interest, penalties, or tax by
submitting written instructions to the Commissioner at the time the payment is
made and in the manner provided in 830 CMR 62C.33.1. The Commissioner will not
recognize oral instructions. Written instructions may be given by completing
and signing Form TDP-1 and submitting the Form with the payment, or by
submitting with the payment a letter that contains all information specified in
830 CMR 62C.33.1(8)(b) through (e). A taxpayer may not direct the application
of a payment by writing on the payment check.
(b)
Direction by
Letter.
1.
Required
Information. If a taxpayer directs the application of a payment in
a letter, the letter will be effective only if it accompanies the payment and
contains all of the information listed in 830 CMR 62C.33.1(8)(b)1.a. through c.
a. the name, address, and social security
number (or other federal tax identification number) of the taxpayer;
b. a clear statement of the particular
liabilities to which the taxpayer's payment should be applied, generally
including the tax type, period, and amount;
c. the taxpayer's signature and the date of
signature.
2.
Extrinsic Information. Letters directing payments
should be limited to the subject of application of payments. Taxpayers who wish
to bring other matters to the attention of the Department should do so by
separate correspondence.
(c)
Multiple Instructions and
Past and Future Payments. In the case of multiple payments, a
separate written instruction must be attached to each payment. Also, the
Commissioner will not accept or recognize written instructions that attempt to
direct the application of one or more past payments or that attempt to direct
the application of one or more future payments.
(d)
Payment
Agreements. A payment agreement entered into by the Commissioner
under M.G.L. c. 62C, §§ 64, 65, shall not be construed as allowing a
taxpayer to direct payments made under the agreement unless the agreement
expressly allows such direction.
(e)
Application of Excess
Amounts. If a payment that is directed to a particular liability
or liabilities exceeds the amount of the specified liability or liabilities,
the Commissioner may apply the excess amount in any manner. A payment directed
to a specified tax type and period will be treated as an excess payment to the
extent that it exceeds the total of the assessments or anticipated assessments,
as evidenced by a Notice of Intent to Assess, for that tax type and period made
on or before the date of the payment. A payment directed to a specified tax
type and period will also be treated as an excess payment if the specified
liability is reduced after the date of payment, due to abatement or otherwise,
and if the payment exceeds the reduced liability.
(9)
Application of Payments in
the Absence of Taxpayer Instruction.
(a)
General Rule. In
the absence of written taxpayer instructions given in the manner provided in
830 CMR 62C.33.1(8), the Commissioner may apply a taxpayer's payments to its
outstanding liabilities in any manner. In the case of partial written
instructions, such as a payment directed to tax with no instructions relating
to tax type or period, the Commissioner may apply the payment in any manner
that does not conflict with the partial instructions given.
(b)
Order of Application and New
Ordering Rules. In general, in the case of a taxpayer with
outstanding liabilities for multiple types of taxes over multiple tax periods,
the Commissioner will apply a payment first by tax type, in the order specified
in 830 CMR 62C.33.1(9)(c), second by tax period in chronological order, and
finally, within any one tax type and period, to tax, penalties, and interest in
that order. However, the Commissioner may adjust the general payment
application sequence when a particular liability is approaching the statute of
limitations for collection, or for any other reason that, in the Commissioner's
discretion, requires such an adjustment.
(c)
Application by Tax
Type. The following is a list of major tax types. As provided in
830 CMR 62C.33.1(9)(b), the Commissioner generally will follow the numerical
order listed below when applying taxpayer payments. This list reflects the
Department's practice of 830 CMR 62C.33.1 as of May 4, 2007, but it is provided
for general information only. The list is not binding on the Commissioner and
may be changed without notice.
1. Excise of
domestic corporations;
2. Excise of
foreign corporations;
3. Personal
income tax (other than fiduciary income);
4. Tax on income received by
fiduciaries;
5. Taxes withheld from
wages;
6. Room occupancy
excise;
7. Sales tax on
meals;
8. Sales taxes (other than
meals);
9. Estate tax.
