Current through Register 1531, September 27, 2024
(1)
Statement of Purpose, Outline
of Topics.
(a)
Purpose. The purpose of 830 CMR 63.38T.1 is to explain
the Massachusetts taxation, pursuant to M.G.L c. 62 or c. 63, of income from
unrelated business activities of corporations, trusts and unincorporated
associations exempt from taxation under 47 I.R.C. § 501.
(b)
Outline of
Topics. 830 CMR 63.38T.1, is organized as follows:
1. Statement of Purpose, Outline of
Topics;
2. Definitions;
3. Taxation of Exempt Corporations;
4. Taxation of Exempt Trusts;
5. Taxation of Exempt Unincorporated
Associations; and
6. Filing
Requirement.
(2)
Definitions. For
purposes of 830 CMR 63.38T.1, the following terms have the following meanings,
unless the context requires otherwise:
Code, the Internal Revenue Code of the
United States, as defined under M.G.L. c. 62 or c. 63, as applicable.
Commissioner, the Commissioner of
Revenue.
Exempt Corporation, a domestic or
foreign corporation, as defined in M.G.L. c. 63, § 30, that is exempt from
taxation under 47 I.R.C. § 501.
Exempt Trust, a trust, as determined
under Massachusetts law, that is exempt from taxation under 47 I.R.C. §
501, but not including a corporate trust, as defined in M.G.L. c. 62, §
1(j).
Exempt Unincorporated Association, an
association, organization or similar enterprise that is exempt from taxation
under 47 I.R.C. § 501 and that is not an exempt corporation or exempt
trust. Exempt Unincorporated Association includes
limited liability companies in the instance in which the LLC is not treated as
a corporation within the meaning of M.G.L. c. 63 and the LLC is exempt from
taxation under 47 I.R.C. § 501.
Federal Unrelated Business Taxable
Income, income as determined under 47 I.R.C. § 512.
(3)
Taxation of Exempt
Corporations.
(a)
General. An exempt corporation is subject to tax under
M.G.L. c. 63, § 39 on its Massachusetts unrelated business taxable income.
However, the property or net worth of the exempt corporation shall not be
subject to tax under M.G.L. c. 63, § 39. Also, the exempt corporation
shall not be subject to the minimum excise. The provisions of M.G.L. c. 63,
§ 39, and
830 CMR 63.39.1
shall be applicable to determine whether a foreign corporation exempt from
taxation under 47 I.R.C. § 501 is subject to the tax jurisdiction of
Massachusetts.
(b)
Massachusetts Unrelated Business Taxable Income. An
exempt corporation's Massachusetts unrelated business taxable income is its
federal unrelated business taxable income with the modifications referenced in
830 CMR 63.38T.1(3)(c).
(c)
Adjustments. An exempt corporation shall add back to
its unrelated business taxable income items that must be added back to income
pursuant to M.G.L. c. 63. For example, any federal net operating loss deduction
claimed under section 172 of the Code must be added back by such corporations.
Further, to the extent that it has unrelated business taxable income, an exempt
corporation may deduct items that are deductible under M.G.L. c. 63 that are
directly connected with carrying on its unrelated trade or business, such as,
where appropriate, the Massachusetts net operating loss (NOL) and carryover
deduction provided in M.G.L. c. 63, § 30(5). Carryover of the NOL
generated in any taxable years in which an exempt corporation was not subject
to taxation in Massachusetts on its unrelated business taxable income shall not
be allowed.
(d)
Apportionment. If an exempt corporation has unrelated
business taxable income that is taxable both within and without the
Commonwealth it may apportion its net income to the Commonwealth pursuant to
M.G.L. c. 63, § 38. The apportionment factors shall be determined only
with respect to the unrelated business activity of the exempt
corporation.
(e)
Credits. The credits allowed to corporations under
M.G.L. c. 63 are allowed to exempt corporations. However, the credits must be
determined only with respect to the unrelated business activity of the
corporation.
(f)
Local
Property Tax. The exempt corporation is not a domestic corporation
or a foreign corporation for purposes of M.G.L. c. 59.
(g)
Effective Date.
830 CMR 63.38T.1(3) is effective for tax years beginning on or after January 1,
2006.
(4)
Taxation of Exempt Trusts.
(a)
General. The
Massachusetts unrelated business income of an exempt trust is subject to tax
under M.G.L. c. 62, § 10. However, pursuant to M.G.L. c. 62, § 5(b),
any stock bonus, pension, or profit-sharing trust qualifying under 47 I.R.C.
§ 401 or any individual retirement account qualifying under 47 I.R.C.
§ 408 is not subject to tax under M.G.L. c. 62.
(b)
Massachusetts Unrelated
Business Income. In the case of an exempt trust, Massachusetts
unrelated business income is the exempt trust's federal gross income derived
from any unrelated business activity with the modifications set forth in M.G.L.
c. 62, § 2. In the case of a nonresident exempt trust, Massachusetts
unrelated business income is the portion of its federal gross income from
unrelated business activity that is derived from sources in
Massachusetts.
(c)
Trustee Deductions. The trustee of an exempt trust is
entitled to any deductions allowed under M.G.L. c. 62 that are directly
connected with carrying on the trust's unrelated trade or business. In
addition, the trustee is allowed the deductions under M.G.L. c. 62,
§§ 3A(a), 3B(a)(2) and 3C(a)(2) for such net amount of Part A, Part
B, and Part C adjusted gross income of the trustee as is pursuant to the terms
of the trust currently payable to or irrevocably set aside for public
charitable purposes, or to or for the benefit of an organization or
organizations established and operated exclusively for charitable purposes. The
deductions under M.G.L. c. 62, §§ 3A(a)(2), 3B(a)(2) and 3C(a)(2) may
reduce the trust income to zero.
(5)
Taxation of Exempt
Unincorporated Associations.
(a)
General. The Massachusetts unrelated business income
of an unincorporated association is subject to tax under M.G.L. c. 62. For
purposes of reporting the income, an exempt unincorporated association is
considered an entity separate from its members and is required to file as a
fiduciary on behalf of these members.
(b)
Massachusetts Unrelated
Business Income. In the case of an exempt unincorporated
association, Massachusetts unrelated business income is the exempt
unincorporated association's federal gross income derived from any unrelated
business activity with the modifications set forth in M.G.L. c. 62, §
2.
(c)
Deductions. An exempt unincorporated association is
entitled to any deductions allowed under M.G.L. c. 62 that are directly
connected with carrying on the association's unrelated trade or
business.
(6)
Filing Requirement. An exempt corporation, trust or
unincorporated association is required to file a Massachusetts return if it has
federal gross income from an unrelated trade or business of $1,000 or more even
if the exempt organization's taxable income is zero.
REGULATORY AUTHORITY
830 CMR 63.38T.1: M.G.L. c. 14, § 6(1); M.G.L. c. 62C,
§ 3.
