NOTICE: All slip opinions and orders are subject to formal 

revision and are superseded by the advance sheets and bound 

volumes of the Official Reports. If you find a typographical 

error or other formal error, please notify the Reporter of 

Decisions, Supreme Judicial Court, John Adams Courthouse, 1 

Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-

1030; SJCReporter@sjc.state.ma.us

14-P-1861 Appeals Court

NATIONAL GRID USA SERVICE COMPANY, INC. vs. COMMISSIONER OF 

REVENUE.

No. 14-P-1861.

Suffolk. December 11, 2015. - June 8, 2016.

Present: Cypher, Carhart, & Blake, JJ.

Taxation, Abatement, Corporate excise. Public Utilities.

Appeal from a decision of the Appellate Tax Board.

John S. Brown (Donald-Bruce Abrams with him) for the 

taxpayer.

Brett M. Goldberg for Commissioner of Revenue.

CYPHER, J. National Grid USA Service Company, Inc. (NGUSA) 

appeals from a decision of the Appellate Tax Board (board) 

denying its motion for summary judgment and allowing a motion to 

dismiss brought by the Commissioner of Revenue (commissioner) 

concerning the effect of a closing agreement between National 
2

Grid Holdings, Inc. (NGHI)

1 and the Internal Revenue Service 

(IRS) on interest deductions under G. L. c. 63, § 30(4). The 

board rejected National Grid's position that the closing 

agreement, which allowed a Federal deduction for a portion of 

the disputed interest payments, is binding on deductions allowed 

for State tax purpose.

Background. For background we refer to our decision in 

National Grid Holdings, Inc. v. Commissioner of Rev., 89 Mass. 

App. Ct. (2016) (National Grid Holdings, Inc.). Briefly, 

that case dealt with the question whether certain deferred 

subscription arrangements (DSAs), among various entities related 

to National Grid plc, the parent company located in the United 

Kingdom, constituted true indebtedness, whereby payments made 

pursuant to the DSAs could be deducted as interest in 

calculating Massachusetts corporate excise tax. The 

commissioner disallowed the deductions for the 2002 tax year and 

National Grid appealed to the board. This separate action arose

when the board, in hearing the first appeal, declined to admit 

the closing agreement in evidence.

Relevant here, we add the following undisputed facts from 

the board's September 19, 2014, findings of fact and report. 

 

1 NGUSA is the principal reporting corporation for a 

Massachusetts combined group of affiliated entities. In this 

appeal, we refer to NGUSA and/or NGHI as National Grid.
3

National Grid's tax returns for the 2002 tax year were audited 

by both the commissioner and the IRS. On May 1, 2007, National 

Grid entered into a closing agreement with the IRS, pursuant to 

26 U.S.C. § 7121 of the Internal Revenue Code (code), in 

connection with National Grid's Federal tax return.

2 As part of 

that agreement, the IRS allowed a Federal deduction for a 

portion of the amount claimed by National Grid as interest on 

the DSAs.

As to National Grid's 2002 Massachusetts tax return, the 

commissioner determined that the DSAs were not indebtedness and 

that payments made in connection therewith were not interest. 

The commissioner issued an assessment, and on April 26, 2007, 

National Grid filed a CA-6, application for abatement/amended 

return (form CA-6), which the commissioner then denied. 

National Grid appealed to the board, which ruled in the 

commissioner's favor. National Grid appealed to this court, in 

National Grid Holdings, Inc., supra.

This case comes before us as a separate appeal because 

three months after filing its original form CA-6, National Grid 

filed a second form CA-6 on July 27, 2007, to report the Federal 

changes that resulted from the closing agreement. The second 

 

2 Section 7121(a) authorizes the IRS "to enter into an 

agreement in writing with any person relating to the liability 

of such person (or of the person or estate for whom he acts) in 

respect of any internal revenue tax for any taxable period."
4

form CA-6 indicated that the corrected amount of tax due, based 

on the Federal change, was the same as the original amount of 

the tax due on its return, and that the net change to the tax 

was zero. National Grid did not indicate at that time that it 

was seeking an abatement based on the Federal changes.

The commissioner did not act on the second form CA-6. 

Subsequently, at the hearing before the board in the first 

appeal, National Grid sought to introduce the closing agreement 

in evidence, and was denied. Approximately a month later, on 

March 14, 2012, National Grid withdrew its consent to the 

commissioner's failure to act on the second form CA-6 and filed 

an appeal with the board. The commissioner moved to dismiss and 

National Grid moved for summary judgment. The board ruled that 

the closing agreement did not entitle National Grid to an 

abatement, and National Grid followed with this appeal.

Discussion. We are asked to decide whether the closing

agreement between National Grid and the IRS is binding on the

commissioner as to the deductions permitted for National Grid's

Massachusetts corporate excise. The Massachusetts corporate 

excise statute refers to the code in providing for deductions 

that may be taken in calculating net income. General laws 

c. 63, § 30(4), as amended through St. 2003, c. 143, § 5,

defines net income, in relevant part, as "gross income less the 

deductions, but not credits, allowable under the provisions of 
5

the Federal Internal Revenue Code." The code, in turn, allows a 

deduction for "all interest paid or accrued within the taxable 

year on indebtedness." 26 U.S.C. § 163(a). National Grid 

maintains that the IRS's allowance of a portion of the DSA

payments as deductions in the closing agreement constitutes the 

allowance of the deductions as interest under the code for 

purposes of § 30(4) such that those payments should be 

deductible, as interest on indebtedness, in calculating National 

Grid's Massachusetts excise.

The board determined that the IRS's allowance of a portion 

of the disputed interest deductions, as part of the closing 

agreement, did not dictate the commissioner's treatment of the 

interest payments for State tax purposes. Because Massachusetts 

deductions are determined by reference to those that are 

"allowable under the provisions of the Federal Internal Revenue 

Code," the board reasoned that by permitting only some of the 

claimed Federal interest deductions for the DSA payments, and 

not all, the closing agreement did not establish that the DSA 

payments qualified as interest. We agree.

The undisputed fact that only a portion of the interest 

deductions was allowed by the IRS cuts against National Grid's 

position. National Grid provided no proof that the claimed 

interest payments under the DSAs were anything but homogenous or 

that there was a factual basis to distinguish among them for 
6

Federal tax purposes. A deduction for the DSA payments cannot 

be deemed allowable under the code if some of those payments 

actually were allowed as deductions by the IRS while others were 

not. As the board aptly observed, "either all of the payments 

are interest or none is."

Section 30(4) specifically identifies those deductions that 

are allowable under the provisions of the code, and not what 

actually is allowed by the IRS pursuant to an agreement with an 

individual taxpayer. The distinction between allowable and 

allowed is not a minor one, as National Grid insists. The 

commissioner directs us to authority from other jurisdictions on 

this point, which we find persuasive.

In Flood v. United States, 33 F.3d 1174, 1177 (9th Cir. 

1994), the term "allowable as a deduction" was described as a 

"term of art" in the tax field, citing Lenz v. Commissioner of 

Rev., 101 T.C. 260, 265 (U.S.T.C. 1993). In Lenz, supra, the 

United States Tax Court stated that an "'[a]llowable deduction' 

generally refers to a deduction which qualifies under a specific 

[c]ode provision whereas 'allowed deduction,' on the other hand, 

refers to a deduction granted by the Internal Revenue Service." 

"A deduction is 'allowable' if it is permitted and not otherwise 

forbidden or limited by the [code], whether or not [the 

deduction is] actually used." Flood, supra, quoting from Sharp

v. United States, 14 F.3d 583, 588 (1993). Similarly, in Force
7

v. Department of Rev., 350 Or. 179, 184 (2011), the Oregon 

Supreme Court highlighted the significance of the State death 

tax credit that was "allowable" under the [code], and "not any 

credit that was actually allowed." See Day v. Heckler, 735 F.2d 

779, 784 (4th Cir. 1984) ("The distinction between an 

'allowable' deduction and an 'allowed' deduction is not 

insignificant"); Sharp, supra (distinguishing between deductions 

that are "allowable" under the Code and those that actually are 

taken).

National Grid relies on two out-of-State cases as well, but 

both deal with State statutes providing for State taxes "as 

determined" or "to be determined" under the code. We note at 

the outset that the plain meaning of "determined" is not 

synonymous with "allowable." While "allowable" is defined as

permissible, "determined" means to settle a question or 

controversy, or to come to a decision concerning, as the result 

of investigation or reasoning. Webster's Third New 

International Dictionary (1993). Indeed, in Comptroller of the 

Treasury v. Colonial Farm Credit, ACA, 918 A.2d 514, 518-519 

(Md. Ct. Spec. App. 2007), upon which National Grid relies, a

closing agreement between a farm credit association and the IRS 

reflected a judicial determination, in a similar case, that a 

portion of the taxpayer's lending activities should maintain the 

same tax exempt status enjoyed prior to its merger with an 
8

entity that was not tax-exempt. Thus the closing agreement was 

held binding for State tax purposes because it determined how 

the association's taxable income would be treated under the 

code, consistent with the State statute providing for State 

taxes "as determined" under the code.

A second case, American Tel. & Tel. Co. v. State Tax Appeal 

Bd., 241 Mont. 440, (Mont. 1990), involved a depreciation 

deduction allowed under a closing agreement that was less than 

the deductions allowable under the code. The taxpayer argued 

that, for State tax purposes, it was entitled to the full extent 

of deductions allowable under the code, as the State statute 

provided that the allowance for wear and tear was "to be

determined" according to the code. Id. at 450-451. However,

the court held that the amounts claimed for State tax purposes 

should be the same as those claimed on the taxpayer's Federal 

tax return, which were determined by the closing agreement with 

the IRS. Significantly, however, the court relied on additional 

statutory language that "[a]ll elections for depreciation shall 

be the same as the elections made for [F]ederal income tax 

purposes." Id. at 451. The relevant statutory language in that 

case is markedly different from G. L. c. 63, § 30(4), and does 

not bear on the effect of the closing agreement here. See 

Rohrbough, Inc. v. Commissioner of Rev., 385 Mass. 830, 832 

(1982) ("The reference is to the provisions of the Internal 
9

Revenue Code and not simply to the amount of gross income shown 

on a taxpayer's Federal income tax return for the same year"). 

National Grid also relies on the board's findings of fact 

and report in PMAG, Inc. v. Commissioner of Rev., 23 Mass. App. 

Tax Bd. Rep. 163, 164-165 (1998), as support for its position 

that the board should give effect to the deductions allowed in 

the closing agreement. But in that case, the commissioner 

specifically stipulated that, for Federal tax purposes, PMAG's 

closing agreement with the IRS resulted in an increase in its 

Federal taxable income pursuant to the provisions of the code. 

Here, by contrast, the commissioner never stipulated to the 

effect of the closing agreement between National Grid and the 

IRS, and the commissioner specifically disputes that the closing 

agreement constitutes a resolution of National Grid's allowable 

deductions under the provisions of the code. Moreover, as the 

Supreme Judicial Court observed in reviewing the case, "[a] 

change in Federal taxable income does not automatically result 

in a change in Massachusetts net income," and that the 

commissioner engages in an independent review when there is a 

Federal change. PMAG, Inc. v. Commissioner of Rev., 429 Mass. 

35, 39 (1999).

Conclusion. We conclude that the interest deduction 

provided in the closing agreement between National Grid and the 

IRS did not constitute a binding determination of the interest 
10

deductions allowable for Massachusetts corporate excise 

purposes. The board correctly ruled that the issue raised by 

National Grid's second application for an abatement regarding 

the interest payments under the DSAs was resolved by the board's 

decision in the original abatement proceedings. Accordingly, we 

affirm the board's decision in dismissing the appeal.

So ordered.