Code of Massachusetts Regulations › 830 CMR - DEPARTMENT OF REVENUE › Title 830 CMR 63.00 - Taxation of corporations › Section 63.30.3 - Entity Classification under St. 2008, c. 173

Current through Register 1525, July 5, 2024
(1)
Statement of Purpose; Outline
			 of Topics; Effective Date
.
(a)
Statement of Purpose
. St. 2008, c. 173 has changed the
			 way unincorporated businesses are classified and treated for purposes of the
			 Massachusetts corporate excise and personal income taxes, resulting in general
			 conformity with federal entity classification and filing rules, effective with
			 the first taxable year beginning on or after January 1, 2009. By St. 2008, c.
			 173, Massachusetts adopts the federal "check-the-box" rules, which permit
			 unincorporated businesses generally to elect how they will be classified.
Under the federal check-the-box rules, unincorporated
				businesses with two or more members are allowed to elect to be taxed either as
				corporations or as partnerships. Also, unincorporated associations with a
				single member may elect to be taxed as corporations or they may elect to be
				disregarded as an entity separate from their owner, thus being treated as a
				branch or division of their owner for tax purposes. Pursuant to St. 2008, c.
				173, an entity's federal check-the-box election or default federal
				classification will also apply for Massachusetts personal income tax and
				corporate excise purposes; no separate Massachusetts election is required or
				permitted.
The check-the-box rules have applied in Massachusetts to
				limited liability companies (LLCs) since 1997. Thus, the statutory change
				pursuant to St. 2008, c. 173 will apply particularly to partnerships and to
				corporate trusts. Formerly, partnership status for purposes of M.G.L. c. 62,
				§ 17 (and related personal income tax and corporate excise provisions) has
				been generally determined by evaluating various legal and factual
				characteristics of the entity. "Corporate trusts" - that is, business trusts,
				or certain other entities (such as partnerships) with transferable shares, as
				defined in M.G.L. c. 62, § 1(j) have been subject to the rules at M.G.L.
				c. 62, § 8. Because federal law has no separate tax classification for
				corporate trusts, the recent legislation repeals the specific Massachusetts
				rules that applied to the taxation of corporate trusts.
All federal S corporations are now subject to the entity level
				tax that applies to S corporations in Massachusetts under M.G.L. c. 63, §
				32D, notwithstanding the entity's legal form of organization. Formerly, a
				qualified federal Subchapter S corporation subsidiary (QSUB) was subject to an
				entity level tax separate from its parent. St. 2008, c. 173 changes this, and a
				QSUB is now evaluated together with its parent in determining the parent S
				corporation's Massachusetts tax liability.
830 CMR 63.30.3 addresses the statutory changes and the effect
				they will have on an entity's status and returns, both in the transitional year
				and in future years. It explains the tax consequences of the classification
				changes, which generally would result in a deemed incorporation, reorganization
				or liquidation depending on the circumstances. Under St. 2008, c. 173's
				transition rule authority effective as of July 3, 2008, 830 CMR 63.30.3 also
				describes consequences of transactions, distributions, and other events
				occurring on or after July 3, 2008, and prescribes methods by which tax-free
				earnings and profits of corporate trusts are taxed to entities or successors or
				to their direct or indirect owners, partners, or beneficiaries. Finally, 830
				CMR 63.30.3 states the rules for changes to the estimated payment obligations
				of an affected entity and its shareholders or members.
This guidance does not address every issue related to
				Massachusetts' conformity with federal entity classification; special
				adjustments or tax consequences not specifically considered in this document
				may be required in particular cases in order to achieve Massachusetts tax
				treatment and consequences consistent with the legislative changes effected by
				St. 2008, c. 173 and 830 CMR 63.30.3.
(b)
Outline of
			 Topics
. 830 CMR 63.30.3 is organized as follows:
1. Statement of Purpose; Outline of Topics;
			 Effective Date
2.
			 Definitions
3. Entity
			 Classification under St. 2008, c. 173
4. Tax consequences of reclassification under
			 new statute
5. Changes in estimated
			 tax payment responsibilities
(c)
Effective Date
.
			 Except to the extent otherwise indicated in 830 CMR 63.30.3(2)(c):
1. entity classification rules, as
			 established in 830 CMR 63.30.3, apply to taxable years beginning on or after
			 January 1, 2009; and
2. transition
			 rules contained in 830 CMR 63.30.3(2)(c), including without limitation rules
			 governing the consequences of certain transactions, distributions, and other
			 events occurring on or after July 3, 2008 and the methods for taxing tax-free
			 earnings and profits of corporate trusts, apply as provided in 830 CMR
			 63.30.3(2)(c) on and after July 3, 2008. 830 CMR 63.30.3 supersedes all prior
			 public written statements to the extent it is or may be inconsistent with any
			 such prior statement or portion thereof.