Massachusetts Provides Estimated Tax Penalty Relief for IRC Sec. 965 Income

Massachusetts intends to waive tax penalties for the underpayment of estimated corporate excise tax on IRC Sec. 965 income.

What is the IRC Sec. 965 Transition Tax?

The Tax Cuts and Jobs Act (P.L. 115-97) made numerous changes to federal income tax provisions. The changes include the IRC Sec. 965 transition tax on the earnings and profits (E&P) of foreign corporations that is deemed repatriated.

The tax applies to E&P accumulated after 1986 and before 2018.

Does Massachusetts Require Reporting for IRC Sec. 965 Income?

Massachusetts generally follows the IRC as amended and in effect for the tax year. Consequently, corporations that report IRC Sec. 965 income for federal income tax purposes must also report that income to Massachusetts.

The reporting requirements apply to a corporation if:

  1. it is subject to the corporate excise tax for the tax year; or
  2. it is not subject to the tax, but it is filing as a member of a Massachusetts combined group.

When does Massachusetts Require Estimated Tax Payments?

Massachusetts estimated tax requirements apply to a corporation if it reasonably estimates its excise tax liability will exceed $1,000 for the tax year. A penalty applies if a corporation underpays its estimated tax liability.

A safe harbor exists to provide certain taxpayers relief from the estimated tax penalty.

How do Corporations Request Penalty Relief?

A corporation must file Massachusetts Schedule M-2220, Underpayment of Massachusetts Estimated Tax by Corporations, with its return. The corporation must also file a Massachusetts Schedule TDS, Taxpayer Disclosure Statement. The disclosure statement must:

  • identify the amount of federal gross income relating to IRC Sec. 965; and
  • explain the Schedule M-2220 underpayment calculation.

Technical Information Release 18-4, Massachusetts Department of Revenue, May 15, 2018, ¶401-650

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