830 CMR, § 63.38T.1

Current through Register 1536, December 6, 2024

Section 63.38T.1 - Taxation of Unrelated Business Income of Exempt Organizations

(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.

830 CMR, § 63.38T.1

Date of Promulgation: 10/5/07

Amended by Mass Register Issue 1328, eff. 12/16/2016.

Amended by Mass Register Issue 1448, eff. 7/23/2021.

REGULATORY AUTHORITY

830 CMR 63.38T.1: M.G.L. c. 14, § 6(1); M.G.L. c. 62C, § 3.