830 CMR, § 62.6M.1

Current through Register 1533, October 25, 2024

Section 62.6M.1 - Community Investment Tax Credit

(1)Statement of Purpose, Outline of Topics, Applicable Tax Years.

(a)Statement of Purpose. 830 CMR 62.6M.1 explains the calculation of the community investment tax credit allowed for qualified investments to a community partner or community partnership fund, established by St. 2012, c. 238, §§ 29, 30, 35, 36, 82, 83, 95, 97, 97A and 98; amended by St. 2013, c. 36, §§ 8 through 15, 58 and 82; St. 2016, c. 219, §§ 78, 79, 92 and 93; and St. 2018, c. 99, §§ 11, 12, 12A, 19, 20 and 21; and codified at M.G.L. c. 62, § 6M and M.G.L. c. 63, § 38EE. Regulations issued by the Department of Housing and Community Development (DHCD) setting forth the process by which community development corporations and community support organizations may apply to be a community partner and receive a community investment tax credit allocation and qualified investments from taxpayers may be found at 760 CMR 68.00: Community Investment Tax Credit Program.

(b)Outline of Topics. 830 CMR 62.6M.1 is organized as follows:

1. Statement of Purpose, Outline of Topics, Applicable Tax Years;

2. Definitions;

3. Prerequisites to Claiming the Credit;

4. Amount of Credit;

5. When a Qualified Investment is Made;

6. Cumulative Cap;

7. Credit is Refundable;

8. Carry Over of Unused Credit;

9. Offset Debt Collection;

10. Special Rules Applicable to Pass-through Entities;

11. Qualified Investments by Married Couples;

12. Qualified Investments by Corporations That File a Combined Report;

13. General Rules - Taxpayers That Have No Tax Liability or Filing Requirements;

14. Organizations Exempt From Taxation under Code § 501;

15. Cash Contributions Where Credit May Be Disallowed;

16. Massachusetts Gross Income;

17. Recordkeeping; and

18. Examples.

(c)Applicable Tax Years. The community investment tax credit available under M.G.L. c. 62, § 6M and M.G.L. c. 63, § 38EE is applicable to tax years beginning, and for qualified investments made, on or after January 1, 2014 through December 31, 2025, or to such time as the Legislature may extend the expiration date of the credit.

(2)Definitions. For purposes of 830 CMR 62.6M.1, the following terms have the following meanings, unless the context requires otherwise:

Code, with respect to personal income taxation under M.G.L. c. 62, the federal Internal Revenue Code, as modified in M.G.L. c. 62, § 1(c); and with respect to corporate level taxation under M.G.L. c. 63, the federal Internal Revenue Code, as amended and in effect for the taxable year, as more fully defined in M.G.L. c. 63.

Commissioner, the Commissioner of Revenue or the Commissioner's duly authorized representative.

Community Development Corporation, a corporation as defined in M.G.L. c. 40H, § 2 and certified as a community development corporation by DHCD.

Community Investment Tax Credit Allocation, an award provided by DHCD through a competitive process that enables the recipient of the allocation to solicit and receive qualified investments from taxpayers and to provide those taxpayers with a community investment tax credit.

Community Partner, a community development corporation or a community support organization selected by DHCD through a competitive process to receive a community investment tax credit allocation.

Community Partnership Fund, a fund administered by a nonprofit organization selected by DHCD to receive qualified investments from taxpayers for the purpose of allocating such investments to community partners.

Community Support Organization, any nonprofit organization that is neither a community development corporation nor a nonprofit organization selected to administer a community partnership fund that has a record of providing capacity building services to community development corporations.

DHCD, the Department of Housing and Community Development.

Qualified Investment, a cash contribution made to a specific community partner to support the implementation of its community investment plan as defined in M.G.L. c. 62, § 6M(b) and M.G.L. c. 63, § 38EE(b) or to a community partnership fund.

Taxpayer, any individual or entity that makes a qualified investment and is entitled to claim a credit under M.G.L. c. 62, § 6M or M.G.L. c. 63, § 38EE, as applicable.

(3)Prerequisites to Claiming the Credit. Before a credit may be claimed, DHCD must certify that the taxpayer made a cash contribution to a community partner or to a community partnership fund and issue an interim certificate to the taxpayer that establishes that the prerequisites to claiming the credit in 830 CMR 62.6M.1 have been met. Upon receipt of the interim certificate, the taxpayer must complete the taxpayer portion of the form and forward it to the Commissioner, who shall then issue a final certificate to the taxpayer. No credit will be allowed unless the certificate number from the final certificate is included in the space provided on the return filed by the taxpayer with the Commissioner for the taxable year in which the credit is claimed or such other validation as the Commissioner may require is provided.

(4)Amount of Credit. In general, the credit shall be equal to 50% of the total qualified investment made by the taxpayer for the taxable year. No credit shall be allowed to a taxpayer that makes a qualified investment of less than $1,000.

(5)When a Qualified Investment is Made. The credit shall be allowed for the taxable year in which the qualified investment is made by a taxpayer. A qualified investment is made at the time delivery of the qualified investment by a taxpayer to a community partner or community partnership fund is "effected", as that term is used in Treasury Regulation § 1.170A-1(b). Accordingly, for example, the unconditional delivery of a cash contribution or mailing of a check by a taxpayer, which subsequently clears in due course, to a community partner or a community partnership fund shall constitute an effective qualified investment by the taxpayer on the date of delivery or mailing.

(6)Cumulative Cap. The total cumulative value of all the credits authorized pursuant to M.G.L. c. 62, § 6M and M.G.L. c. 63, § 38EE shall not exceed:

(a) $3,000,000 in taxable year 2014;

(b) $6,000,000 in each of taxable years 2015 through 2018;

(c) $8,000,000 in each of taxable years 2019 and 2020;

(d) $10,000,000 in each of taxable years 2021 and 2022; and

(e) $12,000,000 in each of taxable years 2023 through 2025.

(7)Credit is Refundable. The credit is refundable but not transferable. The Commissioner shall apply the credit against the taxpayer's liability as reported on the taxpayer's tax return, as first reduced by any other available credits, and then refund the balance of the credit to the taxpayer without interest.

(8)Carry Over of Unused Credit. Alternatively, at the option of the taxpayer, a taxpayer entitled to claim a credit under M.G.L. c. 62, § 6M or M.G.L. c. 63, § 38EE for a taxable year may carry over and apply against the taxpayer's tax liability for any one or more of the succeeding five taxable years, the portion, as reduced from year to year, of the credit which exceeds the tax for the taxable year. If the taxpayer elects to carry over a credit balance, then the credit refund provisions allowed by 830 CMR 62.6M.1(7) shall not apply.

(9)Offset Debt Collection. The provisions of M.G.L. chs. 62C and 62D including, without limitation, provisions allowing offsets of refunds for unpaid tax assessments, child support obligations, or other applicable obligations, apply to refunds and credits under 830 CMR 62.6M.1(7) and (8).

(10)Special Rules Applicable to Pass-through Entities.

(a)Pass-through Entities Not Taxed at Entity Level. In the case of a qualified investment by a pass-through entity that is not taxable at the entity level, such as a partnership, the credit allowed under M.G.L. c. 62, § 6M or M.G.L. c. 63, § 38EE, as applicable, shall be passed through to the entity's partners or owners pro rata or pursuant to an executed agreement among the entity's partners or owners documenting an alternative distribution method without regard to their sharing of other tax or economic attributes of the entity. The total aggregate amount of the credit passed through by such entity and claimed by its partners or owners in any taxable year shall not exceed the credit amount allowed by 830 CMR 62.6M.1(4).

(b)Pass-through Entities Taxed at Entity Level. A trust or subchapter S corporation subject to tax at the entity level in any year may claim the credit allowed under M.G.L. c. 62, § 6M or M.G.L. c. 63, § 38EE, as applicable, for the taxable year in which the qualified investment is made. Alternatively, the credit may be passed through to the entity's beneficiaries or shareholders pro rata or pursuant to an executed agreement among the entity's beneficiaries or shareholders documenting an alternative distribution method without regard to their sharing of other tax or economic attributes of the entity. These alternatives are mutually exclusive; an entity may not claim part of the credit against its own excise and pass the rest through to its beneficiaries or shareholders. Either:

(i) the entity or

(ii) the beneficiaries or shareholders may claim the credit, but not both. If credits are passed through to beneficiaries or shareholders, any credits that cannot be applied in the taxable year for which a carryover is elected may be carried over and applied against the beneficiary's or shareholder's tax liability in succeeding taxable years. Carryovers may not be claimed at the entity level in such cases. The total aggregate amount of the credit passed through by such entity and claimed by its beneficiaries or shareholders in any taxable year shall not exceed the credit amount allowed by 830 CMR 62.6M.1(4).

(11)Qualified Investments by Married Couples. In any one taxable year, the total amount of the credit that may be claimed under M.G.L. c. 62, § 6M by a married couple who makes qualified investments shall not exceed the credit amount allowed by 830 CMR 62.6M.1(4) and may be claimed only if the spouses file a joint return, if both spouses are required to file Massachusetts income tax returns. If only one spouse is required to file a Massachusetts income tax return, that spouse may claim the credit on a separate return.

(12)Qualified Investments by Corporations That File a Combined Report. In any one taxable year, the total aggregate amount of the credit that may be claimed under M.G.L. c. 63, § 38EE by corporations that make qualified investments and are members of a combined group required to file a combined report under M.G.L. c. 63, § 32B shall not exceed the credit amount allowed by 830 CMR 62.6M.1(4).

(13)Taxpayers Who Have No Tax Liability or Filing Requirements. Taxpayers who have no Massachusetts corporate excise or income tax liability or are not otherwise required to file a return in Massachusetts that make a qualified investment are nonetheless eligible to claim a refund of the credit by filing a Massachusetts corporate excise or income tax return, as applicable, for the taxable year in which the qualified investment is made.

(14)Organizations Exempt from Taxation under Code § 501. An organization exempt from taxation under Code § 501 that makes a qualified investment is eligible to claim a refund of the credit. The Commissioner shall apply the credit first against the organization's liability arising from its unrelated business taxable income, as defined in § 512 of the Code, if any, as reported on the organization's income tax return, whether or not the credit results from the unrelated business activity of the organization that gave rise to such liability, and then refund the balance of the credit to the organization.

(15)Cash Contributions Where Credit May Be Disallowed.

(a)Contributions by Community Partners and Their Employees. A community partner that makes a cash contribution to another community partner is ineligible to claim the credit otherwise allowed under M.G.L. c. 62, § 6M or M.G.L. c. 63, § 38EE with respect to the contribution. Similarly, an employee of a community partner is ineligible to claim the credit otherwise allowed under M.G.L. c. 62, § 6M or M.G.L. c. 63, § 38EE with respect to cash contributions made by such employee to such community partner.

(b)Contributions Where Business Relationship Exists between Community Partner and Taxpayer. A cash contribution by a taxpayer to a community partner that purchases goods or services from the taxpayer may qualify for the credit under M.G.L. c. 62, § 6M or M.G.L. c. 63, § 38EE only if the cash contribution is not in any way an element of or contingent upon such contractual relationship between the parties or upon its continuation. In the case of any taxpayer who receives or expects to receive payment of more than $1000 from a community partner in the year that the taxpayer makes a cash contribution to such community partner or in the immediately preceding year, the taxpayer must disclose its contractual relationship with the community partner as part of its application for credit and must certify as part of the application that the cash contribution is entirely independent of such contractual relationship. The Commissioner may disallow a credit or recapture a refund in the event that the Commissioner determines, pursuant to audit or otherwise, that any such required disclosure was incomplete or inaccurate.

(16)Inclusion of Credit in Massachusetts Gross Income. A refund of the credit is includable in Massachusetts gross income to the extent it is includable in federal gross income. Generally a refund of a state credit is includable in federal gross income if it is received by the taxpayer as an actual or constructive payment from the state, after reduction for such portion of the credit, if any, that is used to reduce the taxpayer's current tax liability. The amount of refunded credit that is includable in income would include any offset of the otherwise available credit that is made to cover other applicable obligations owed by the taxpayer under 830 CMR 62.6M.1(9). That portion of a refundable state credit, if any, that is applied to reduce the taxpayer's current state tax liability, in contrast, is generally treated for federal tax purposes as a reduction in tax and is not included in the taxpayer's federal gross income, or otherwise treated as a payment from the state.

(17)Recordkeeping. Every community partner or community partnership fund that receives cash contributions from taxpayers shall maintain records regarding each contribution received of $1000 or more, and shall provide a copy of these records to DHCD. Each record shall include the name and address of the taxpayer making the contribution, or other claimant, if applicable, if the contribution is made by a pass-through entity, along with the dollar amount of each such contribution, and the date the contribution was made.

(18)Examples. The following examples illustrate the provisions of 830 CMR 62.6M.1; they are not intended to be exhaustive.

(a)Example 1. Qualified Investments Directly to Community Partners. On June 1, 2014, John Flyn, a Massachusetts resident, makes a $20,000 qualified investment to JY Corporation, a community development corporation dedicated to community development initiatives within Massachusetts and selected by DHCD to be a community partner. DHCD certifies that John made a qualified investment and issues him an interim certificate on July 3, 2014. The total credit certified on the certificate is $10,000, as stated in 830 CMR 62.6M.1(4), the credit is equal to 50% of the total qualified investment made by the taxpayer for the taxable year. John may claim the $10,000 credit on his 2014 Massachusetts income tax return.

(b)Example 2. Qualified Investments to a Community Partnership Fund. On December 30, 2014, Mary Smith, a Massachusetts resident, makes a qualified investment to a community partnership fund by mailing to the fund a check for $18,000. The fund distributes Mary's $18,000 to a community partner dedicated to undertaking development projects in the city in which Mary lives on February 5, 2015. DHCD certifies that Mary made a qualified investment (i.e., the $18,000 she gave to the community partnership fund) and issues her an interim certificate on February 20, 2015. The total credit certified on the certificate is $9,000. Pursuant to 830 CMR 62.6M.1(5), Mary may claim the $9,000 credit on her 2014 Massachusetts income tax return, as 2014 is the taxable year in which Mary makes a qualified investment. The fact that the community partnership fund to which Mary made her qualified investment subsequently distributes the $18,000 to a community partner in 2015 or the fact that DHCD issues Mary a certificate in 2015 are not determinative of the taxable year in which the credit shall be claimed under 830 CMR 62.6M.1(5).

(c)Example 3. Qualified Investments by Organizations Exempt From Tax Under Code § 501. On May 12, 2015, Nonprofit Unincorporated Association ("NUA") makes a $25,000 qualified investment to a community partnership fund that, in turn, on July 21, 2015, distributes the money equally ($12,500 each) to two community partners. DHCD certifies that NUA made a qualified investment of $25,000 and issues NUA an interim certificate on August 3, 2015. The total credit certified on the certificate is $12,500. In 2015, NUA has unrelated business taxable income that results in a tax liability before credits of $1,000. The qualified investment NUA made to the community partnership fund is unrelated to the business activity that gave rise to NUA's taxable income. Nevertheless, in determining NUA's refund amount, the Commissioner will first apply NUA's $12,500 credit against NUA's $1,000 tax liability and refund the remaining $11,500 to NUA, pursuant to 830 CMR 62.6M.1(14).

(d)Example 4. Donor Advised Funds. On May 10, 2014, Fred Jones, a Massachusetts resident, makes an irrevocable contribution of $100,000 to the donor advised fund ("DAF") he established through XYZ organization ("XYZ"), a public charity exempt from taxation under Code § 501. Fred advises XYZ on how to invest the assets in the DAF so that they may grow prior to being granted and recommends, among other grants, periodic grants of varying amounts from the DAF to community partners located in the city in Massachusetts in which he resides. The final decision as to the distribution of the $100,000 rests with XYZ, however; no distribution from the DAF is made unless XYZ agrees to or approves of it. On October 3, 2014, XYZ makes three $5,000 grants from the DAF established by Fred. Two of those grants qualify as qualified investments as they are made to two separate community partners located in Fred's city. DHCD certifies that XYZ made two qualified investments and issues XYZ two interim certificates on October 25, 2014. The total credit certified on each certificate is $2,500, for a total allowable credit for 2014 of $5,000. Pursuant to 830 CMR 62.6M.1(13), XYZ files a Massachusetts income tax return for 2014 and claims a $ 5,000 refund, as XYZ has no unrelated business taxable income for tax year 2014. Fred, on the other hand, is entitled to claim no credit or refund on his 2014 Massachusetts income tax return for the $100,000 contribution he made to his DAF, as a DAF is not a community partner or a community partnership fund and, thus, contributions to a DAF are not "qualified investments."

(e)Example 5. Qualified Investments by a Nonresident Taxpayer. Jack Cline, a resident of New York with no Massachusetts source income, as defined in M.G.L. c. 62, § 5A, whose only ties to Massachusetts are that he has a daughter and grandchildren living in Massachusetts, makes a $30,000 qualified investment in 2016 directly to a Massachusetts community development corporation dedicated to improving the community his daughter and grandchildren live in and selected by DHCD to be a community partner. DHCD certifies that Jack made a qualified investment and issues him an interim certificate on June 20, 2016. The total credit certified on the certificate is $15,000. Although not otherwise required to file a 2016 nonresident income tax return in Massachusetts, Jack must file a Massachusetts nonresident return in order to receive a payment of the $15,000 refund, as stated in 830 CMR 62.6M.1(13).