State & Local Tax Alert

Transcription

1 State & Local Tax Alert Breaking state and local tax developments from Grant Thornton LLP Massachusetts Extends Altered Process to File Amended Returns and Abatement Requests to Most Tax Types The Massachusetts Department of Revenue issued guidance in December 2016 detailing the extension of new procedures for filing amended returns and abatement applications to all tax types. 1 Related regulations were finalized by the Department in late February. 2 The Department had initially implemented the new process during 2015 for certain business tax types in conjunction with the implementation of MassTaxConnect (MTC), an online tax system. 3 Effective December 5, 2016, the procedures apply to most taxes, including business, personal income, personal use, estate, and fiduciary income taxes. 4 Notably, the process explicitly distinguishes between amended returns and abatement requests and eliminates the use of Form CA-6, Application for Abatement/Amended Returns. Additionally, the Department has provided guidance on the currently required procedures when seeking a refund of sales tax charged by a vendor. 5 Historical Process for Filing Amended Returns and Abatement Requests Massachusetts previously required the filing of Form CA-6 to amend returns and apply for abatements of tax. For amended returns, there was no additional requirement to complete and file a revised copy of the return. 6 Rather, based on the information provided on Form CA-6, the Department would calculate the available refund or additional tax due. Notably, Massachusetts statutes require the Commissioner to take action within six months from the date an application for abatement is filed. Without action, the applications are deemed denied. 7 To avoid a deemed denial, a taxpayer may grant the Commissioner written consent to act beyond the six-month time frame. Form CA-6 included specific language which automatically granted the Commissioner consent to act beyond the statutory six-month period as a consequence of filing. Taxpayers had the Release date March 16, 2017 States Massachusetts Issue/Topic Income Tax, Sales/Use Tax, Other Taxes Contact details Rob Michaelis T E rob.michaelis@us.gt.com Michael Cronin T E michael.cronin@us.gt.com Adam DoVale T E adam.dovale@us.gt.com Erin Digan T E erin.digan@us.gt.com 1 Technical Information Release 16-13, Massachusetts Department of Revenue, Dec. 2, MASS. REGS. CODE tit. 830, 62C The regulations were promulgated Feb. 24, Technical Information Release 15-13, Massachusetts Department of Revenue, Nov. 17, Effective November 30, 2015, the new procedures generally applied to business tax types including Corporate Excise Tax, Financial Institution Excise Tax, Pass-Through Entity Withholding Tax, Business Sales Tax, and Business Use Tax. 4 Technical Information Release Technical Information Release 16-12, Massachusetts Department of Revenue, Dec. 2, However, taxpayers did have the option to include a copy of the revised return and state the net change in tax due. 7 MASS. GEN. LAWS ch. 58A, 6..

2 Grant Thornton LLP - 2 option to withdraw this consent at any time or indicate on Form CA-6 that consent was not granted when filed. This consent applied for both amended returns and abatement requests. New Processes for Filing Amended Returns and Abatement Requests There are now two separate processes outlined by the Commonwealth for filing amended returns and abatement requests. 8 Amended Returns Amended returns are now required to report an error or omission on a return that has already been filed. Filing an amended return will be the appropriate means for most taxpayers to increase or decrease previously self-assessed tax, to report an increase or decrease in self-assessed tax resulting from a federal change, and to make amendments that have no net effect on the tax shown on the return (for example, a change in a tax attribute). 9 Form CA-6, Application for Abatement/Amended Return, will no longer be used for any purpose. Most taxpayers will be able to amend returns electronically on MTC. 10 If filing a paper amended return, a Department representative has recommended sending the return to the same address as the original return and not to attach a copy of the original return, Form ABT or the former Form CA An amended return will generally be processed as an amended self-assessment under Mass. Gen. Laws ch. 62C and remains subject to Department audit review and supporting documentation requirements. 12 Changes indicated on the amended return will be reflected as adjustments to the taxpayer s account. However, neither the processing of an amended return nor the remittance of a refund indicates approval of the reported changes. 13 The Commissioner may subsequently issue a Notice of Intent to Assess if the Department concludes that the proper tax due is higher than the amount reported on the amended return, as required by statute. If a Notice of Intent to Assess is issued, the taxpayer then has 30 days, pursuant to statute, to request a pre-assessment conference with the Department and must follow all other statutory guidelines with respect to further administrative review and appeal. 14 The process of appeals remains the same. Notably, an amended return showing a reduction in tax liability must be filed within the time limits specified for abatements of applicable tax. 15 Any overpayments and refunds 8 MASS. REGS. CODE tit. 830, 62C.26.2(1)(a); Technical Information Release Id. 10 However, personal income taxpayers, corporations filing a combined report and certain other C and S corporations may need to use a paper form because MTC and/or third-party software providers may not support electronic amended return filings. Taxpayers filing amended returns on paper will provide the same tax form as used for the original or prior amended return and check the box indicating whether the return is either an amended return or a federal or state change. 11 Dana Ackerman, Taxpayer Advocate for Massachusetts Department of Revenue, 2017 Massachusetts Society of CPAs Conference presentation, Jan MASS. REGS. CODE tit. 830, 62C.26.2(3); Technical Information Release MASS. REGS. CODE tit. 830, 62C.26.2(4). 14 See MASS. GEN. LAWS ch. 62C, 26(b). 15 MASS. REGS. CODE tit. 830, 62C.26.2(3)(a). See MASS. GEN. LAWS ch. 62C, 30 (federal change), 30A (state change), and/or 37 (for abatement generally).

3 Grant Thornton LLP - 3 resulting from an amended return are subject to applicable statutory limitations, and refunds are subject to any allowable offset or intercept. 16 In certain instances, an amended return filed pursuant to this new process and showing a reduction of tax may be treated as an application of abatement to protect the abatement and appeal rights of the taxpayer and to allow the Department sufficient time to review the changes. 17 The Department will provide the taxpayer notice of such treatment, if applicable, and the date of filing the amended return will be treated as the date of filing the application for abatement. Also, if the Commissioner fails to take action upon a properly filed amended return requesting a reduction in self-assessed tax before the time at which the statute of limitations for abatement claims would otherwise expire, the Commissioner will deem the amended return to be an application for abatement in the amount of the reduction requested. 18 Because an amended return is no longer treated by the Department as an application for abatement, the statutory six-month limitation for the Commissioner to take action does not generally apply. 19 However, an amended return treated as an application for abatement is subject to the statutory limitation. A taxpayer has the ability to consent to extend the time for the Commissioner to act beyond six months in the case of an amended return treated as an application for abatement. Specifically, for amended returns filed on or after November 17, 2016, the act of filing an amended return is considered the taxpayer s written consent to grant the Commissioner additional time to act. 20 Applications for Abatement Taxpayers seeking to obtain an abatement of a deficiency assessment or a penalty assessment issued by the Department should use MTC or file Form ABT, Application for Abatement. 21 However, taxpayers are encouraged to file disputes through MTC as they will be processed much more quickly. 22 Form ABT is similar to the former Form CA-6. Once Form ABT has been filed, the abatement process commences, in the same manner following filings of former Form CA MASS. REGS. CODE tit. 830, 62C.26.2(3)(c); Technical Information Release MASS. REGS. CODE tit. 830, 62C.26.2(5); Technical Information Release Id. 19 Technical Information Release 16-11, Massachusetts Department of Revenue, Nov. 17, MASS. REGS. CODE tit. 830, 62C.26.2(5); see MASS. REGS. CODE tit. 830, 62C. 37.1(5(C). The instructions to the yearly tax form will provide further notice to taxpayers about this process and instructions will be available to all filers on the Department s Web site ( The process will be consistent with the consent granted when a Form ABT, Application for Abatement, is filed. A taxpayer may withdraw such consent at any time by contacting the Department in writing, in which case the deemed denial rule would apply. 21 Technical Information Release Note that taxpayers seeking to appeal a Responsible Persons determination or a state-collected motor vehicle excise assessment, a purchaser filing a refund claim on behalf of a vendor, or tax types not yet supported on MTC must file a paper Form ABT.

4 Grant Thornton LLP - 4 Implications for Purchasers Seeking a Refund for Sales/Use Tax Historically, if a purchaser was seeking a refund of sales or use tax paid in error to a vendor, the purchaser was required to request the refund directly from the vendor. 23 The vendor, in turn, would request a refund from the Department. 24 Alternatively, the purchaser could request a Power of Attorney from the vendor, authorizing the purchaser to file the abatement application with the Department in the name of the vendor. Under the new process, the Department will allow the purchaser in a similar situation to directly file an application for abatement using Form ABT, Application for Abatement. A purchaser seeking a refund on behalf of a vendor must file the form prior to the expiration of the vendor s applicable statute of limitations for filing an abatement application. 25 When filing Form ABT, a purchaser must also include the following documents: (i) a completed Form M-2848, Power of Attorney and Declaration of Representatives, where the vendor grants the purchaser (and its representative, if applicable) a limited power of attorney; (ii) a conditional credit memorandum for the amount of the refund or other proof the vendor has repaid or credited, or will repay or credit, the purchaser who has paid the tax to the vendor in the amount for which the application is made; and (iii) an attachment summarizing the claim, listing the exempt purchases and explaining the process used to determine that the items were exempt. 26 Any refunds granted under the new process will be paid to the vendor, even if the purchaser has filed the abatement application. 27 The vendor is then directed to make a corresponding payment and/or credit such refund amounts to the purchaser. The Department may ask for additional documentation, such as invoices and exemption certificates, during the review process. Commentary With the issuance of these Technical Information Releases and adoption of related regulations, Massachusetts has explicitly distinguished between the process associated with filing amended returns and that for filing abatement requests. The use of the MTC system to file these forms is expected to result in a quicker and more efficient process for both taxpayers and the Department. Although the processes have not dramatically changed, the procedural steps to initiate review of amended returns and abatement requests could be inadvertently missed by tax practitioners lacking proper knowledge of the changes. Technically, Massachusetts has no obligation to accept Form CA-6 filed after November 30, 2015 by businesses, or generally filed by any taxpayers after December 4, Taxpayers failing to follow the correct protocols risk their claims falling outside the respective statutes of limitations. Specifically, the filing of a Form CA-6 also does not hold open any statute of limitations. Thus, 23 MASS. REGS. CODE tit. 830, 62C Notably, a vendor may now seek a refund on behalf of a purchaser by filing an amended return to reduce the amount of self-assessed tax, rather than filing an application for abatement. See Technical Information Release Technical Information Release Id. 27 Id. See MASS. GEN. LAWS ch. 62C, 36, 37 and MASS. REGS. CODE tit. 830, 62C.37.1.

5 Grant Thornton LLP - 5 taxpayers who have filed Massachusetts amended returns or requests for abatement with open statutes should review their filings to ensure that all proper procedures have been followed. The information contained herein is general in nature and based on authorities that are subject to change. It is not intended and should not be construed as legal, accounting or tax advice or opinion provided by Grant Thornton LLP to the reader. This material may not be applicable to or suitable for specific circumstances or needs and may require consideration of nontax and other tax factors. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Grant Thornton LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, re-keying or using any information storage and retrieval system without written permission from Grant Thornton LLP. This document supports the marketing of professional services by Grant Thornton LLP. It is not written tax advice directed at the particular facts and circumstances of any person. Persons interested in the subject of this document should contact Grant Thornton or their tax advisor to discuss the potential application of this subject matter to their particular facts and circumstances. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed.