TIR 03-18: Changes to G.L. c. 62C Contained in the Fiscal Year 2004 Budget
I. Introduction: This Technical Information Release (TIR) explains changes to G.L. c. 62C contained in the "outside sections" of the Fiscal Year 2004 Budget, St. 2003, c. 26, §§ 193 – 198, effective July 1, 2003. As discussed below, these changes reduce the amount of interest that the Department pays on refunds of overpayments of tax, permit the Department to operate more efficiently by making corrections to returns during processing based on third party information or Department of Revenue records, and eliminate duplicative hearings.
- Corrections of Returns Based on Third Party Information
Summary: In the vast majority of cases where the Department corrects a return based on information from third party sources (generally, unreported income), the taxpayer does not dispute the change. In this situation, the Department now will only be required to send one notice to the taxpayer. If the taxpayer disagrees with the proposed correction, the taxpayer must so notify the Department, on a form prescribed by the Commissioner, in writing within thirty (30) days of the date of the notice. This change will be effective for returns filed on or after July 1, 2003.
Detailed explanation: Section 193 of the Fiscal Year 2004 Budget amends section 26(c) of chapter 62C to permit the Commissioner to correct returns based on information from third party sources including, but not limited to, reports of taxable unemployment compensation or Massachusetts state lottery winnings, and assess a deficiency attributable to omission of taxable income without giving prior notice to the taxpayer under section 26(b). This may result in an increase in the amount of tax due or in the reduction of a refund claimed by the taxpayer. Prior to this amendment, the Department’s ability to change a self-assessment without notice to the taxpayer was limited to correction of "an arithmetic or clerical error or other obvious error apparent upon the face of the return."
Concurrently with making the correction, the Department will notify the taxpayer of the change and the reason for the change by way of a "Notice of Change to Your Tax Return" (the "Notice"). If the taxpayer fails to challenge the change explained in this Notice in writing within thirty (30) days from the date appearing on the Notice, or within any extended period permitted by the Department,1 the corrected assessment will become final with no further action required on the part of the Department or the taxpayer.
A taxpayer who disagrees with the change described in the Notice may elect to file for an expedited abatement by signing and returning the appropriate portion of the Notice to the Department or by filing an application for abatement on Form CA-6 within the time limitations provided in G.L. c. 62C, § 37. A taxpayer may also request an abatement hearing on either of those forms. For purposes of filing an abatement, the date of assessment will be the date of the Notice. A taxpayer that timely files an abatement application may challenge the correctness of the assessment but not the method of assessment under § 26(c).
The taxpayer may also elect to challenge the Notice and request that the Commissioner assess the additional tax under section 26(b). In that situation, the Notice will be treated as the Notice of Intention to Assess required by G.L. c. 62C, § 26(b) and the taxpayer may request a pre-assessment conference in accordance with that section within the thirty day period set out in the Notice. If the taxpayer and the Department can agree upon the correct tax liability without a § 26(b) conference, then either the taxpayer’s original return or that return, as mutually corrected, will serve as the taxpayer’s self-assessment. If the taxpayer that has challenged the Department’s correction fails to timely request a pre-assessment hearing or supply further information for consideration by the Department, the Department will assess the tax as proposed in the Notice.
- Substantiation of Abatement Applications
Summary: The Department receives many abatement applications without the supporting documentation necessary to rule upon the merits of taxpayer’s claim. DOR may now deny an incomplete abatement application if the taxpayer fails to supply information requested by the Department within thirty (30) days. Following a denial of an unsubstantiated abatement application, the taxpayer may file a new, properly substantiated abatement application with the Customer Service Bureau of the Department within the time limitations of G.L. c. 62C, § 37, or, in the alternative, appeal to the Appellate Tax Board or the probate court on the merits within the time limitations of G.L. c. 62C, § 39. Any subsequent application for abatement must meet the time limitations for filing an abatement without regard to the prior filing. A second filing of an abatement application will not be acted upon by the Department if (1) the application does not contain information previously requested by the Department or (2) the application contains the same information submitted with the prior filing without additional information or (3) the application is filed after the taxpayer has appealed to the Appellate Tax Board or probate court. The time for perfecting an appeal to the Appellate Tax Board or the probate court in the situations described in (1) and (2) of the previous sentence is from the date of the Department’s first abatement denial and not from the later filed application. Documentation provided to the Litigation Bureau in connection with an appeal will not be considered substantiation of an abatement application. This change will be effective for abatement applications filed on or after July 1, 2003.
Detailed Explanation: Section 194 of the Fiscal Year 2004 Budget amends section 37 of chapter 62C to require that a taxpayer filing an abatement application "include and attach to it all supporting information, documents, explanations, arguments and authorities that will reasonably enable the commissioner to determine whether the applicant is entitled to the abatement requested." The abatement application is not considered complete until all such information has been received by the Department, and may be denied by the Department, without prejudice, if the taxpayer fails to provide information requested by the Department within thirty (30) days from the date of the request. In that situation, the taxpayer will be notified that the abatement is being denied based on lack of sufficient information. See Guides to specific tax types on the DOR website at http://www.dor.state.ma.us/Help_resources.htm for checklists of required information and attachments for abatement applications. These provide general guidance regarding required substantiation for most abatement applications, but may not cover all factual or legal issues unique to a particular taxpayer. Also see 830 CMR 62C.25.1, the Department’s Record Retention regulation.
If the taxpayer appeals a denial of an incomplete abatement application and prevails on the merits of the claim, no interest will accrue during the period prior to the decision or judgment in favor of the taxpayer and interest will only commence from the date of the decision or judgment.
The new requirements imposed by this amendment to G.L. c. 62C, § 37 do not preclude a taxpayer from amending a pending, timely filed abatement application to add additional claims based on new legal precedent not available to the taxpayer at the time the application was filed. See Commissioner of Revenue v. Exxon Corporation, 407 Mass. 17 (1990).
- Limitation on Number of Administrative Hearings
Summary: As the result of this change, a taxpayer will be entitled to either a pre-assessment hearing under G.L. c. 26(b) or an abatement hearing under G.L. c. 37, but not both, unless the taxpayer establishes that there is new factual information or new legal precedent that was not available to the taxpayer at the time of the pre-assessment hearing or the taxpayer raises a new issue not considered at the pre-assessment hearing. This will eliminate duplicative hearings involving identical issues of fact and law that were previously required if requested by the taxpayer. Generally, an explanation identifying the new facts or new legal precedent must be supplied by the taxpayer with the application for abatement, Form CA-6. This change will be applicable to abatement applications filed on or after July 1, 2003.
Detailed Explanation: Section 195 of the Fiscal Year 2004 Budget amends section 37 of chapter 62C to add the following prerequisite to a request for an abatement hearing if the taxpayer has had a G.L. c. 26(b) pre-assessment hearing: "unless the applicant first establishes to the satisfaction of the commissioner that a further hearing is necessary either due to the availability of new factual information or new legal precedent not available to the applicant at the time of the (pre-assessment) conference. . . ." A taxpayer filing an abatement application that has previously had a pre-assessment hearing and who wishes to request an abatement hearing must submit, in writing, filed with and attached to the CA-6 form either (1) a statement and supporting documentation of the specific additional facts that will be relied upon at the abatement hearing and an explanation as to why these facts were not available at the pre-assessment hearing or (2) the name and citation per the recently decided court case, Appellate Tax Board opinion, or other legal precedent that was issued subsequent to the pre-assessment hearing and a written explanation as to why that legal authority should control the outcome of the abatement application. A decision that is either under appeal by the Department or may be appealed by the Department will not be considered a new legal precedent for purposes of this section. Taxpayers who have had a pre-assessment hearing who do not meet these requirements will not be granted an abatement hearing and the Department will grant or deny their abatement application based on the written information provided and information in the Department’s records or provided to the Department from third party sources.
- Reduction in Interest Rate on Overpayments
Summary: Effective July 1, 2003, the interest rate paid by the Department on overpayments of tax will be reduced by two percentage points.
Detailed Explanation: Section 196 of the Fiscal Year 2004 Budget amends G.L. c. 62C, § 40, to reduce the interest rate paid by the Department on overpayments to the Federal short-term rate determined under § 6621(b) of the Internal Revenue Code, as amended and in effect for the taxable year ("Federal short-term rate") plus two percentage points, simple interest. The rate for underpayments pursuant to G.L. c. 62C, § 32, remains at the Federal short-term rate plus four percentage points, compounded daily. See TIR 03-12 and quarterly interest rate updates for specific rates in effect for each quarter.
- Reduction in Interest Paid on Abatements
Summary: Where a taxpayer’s abatement application is granted, interest will be calculated from the date of receipt of a fully substantiated abatement application. This change is applicable to interest accrued on an abatement on and after July 1, 2003. Previously, interest was calculated from the later of the due date of the applicable return without regard to extensions, or the date of receipt of the overpayment, or the date of filing of the return. See 830 CMR 62C.33.1(7)(b).
Detailed Explanation: Section 197 of the Fiscal Year 2004 Budget amends G.L. c. 62C, § 40, by adding the following: "For purposes of this section the term ‘date of overpayment’ shall mean the later of the date when the commissioner shall have received a properly completed return and full payment of the tax due thereon, or the date when the commissioner shall have received a completed and substantiated written application for abatement filed in accordance with this chapter, and any supplemental information requested by the Department from the taxpayer in support of such application." Calculation of interest on refunds of overpayments of tax in other situations, such as an audit change reducing an assessment, is not affected by this statutory change.
- No Interest Paid When Taxpayer’s Return Does Not Agree With Information from Third Party Sources or DOR Records
For purposes of calculating interest on a refund of an overpayment of
tax, a return that requires correction of the tax liability by the
Department based on information from third party sources or Department
of Revenue records will not be considered filed, and thus no interest
will be paid on any refund following the correction. This change is
applicable to interest accrued on an overpayment of tax on and after
July 1, 2003.
Detailed Explanation: Section 198 of the Fiscal Year 2004 Budget amends the last sentence of G.L. c. 62C, § 40, which describes situations in which a taxpayer’s return is not considered "filed" for purposes of calculating interest under that section. As amended, that provision now reads: "For purposes of this section, a return shall not be treated as filed until such return is filed on an approved form and contains: (i) the taxpayer’s name, address, and identifying number and the required signature, and (ii) sufficient required information to permit the mathematical verification of the tax liability shown on the return as compared with the tax liability shown as a result of any corrections made to the return by the commissioner under subsection (c) of section 26 using any records regarding that liability or the payment thereof which are maintained by the commissioner or which are furnished to the commissioner by any third-party." (New statutory language in italics.)
Commissioner of Revenue
1. The Department may, in its sole discretion, consider challenges received after the expiration of the thirty (30) day period if the taxpayer’s challenge was filed late due to reasonable cause and not willful neglect.
August 29, 2003