830 CMR, § 62C.33.1

Current through Register 1536, December 6, 2024

Section 62C.33.1 - Interest, Penalties, and Application of Payments

(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 30^th day following the date of Notice of Assessment, even if payment in full is made prior to such 30^th day. If the tax, or any portion thereof, is not paid by the 30^th 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 30^th 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.

830 CMR, § 62C.33.1

Amended by Mass Register Issue 1307, eff. 11/30/2015.

Amended by Mass Register Issue 1333, eff. 12/5/2016.