Massachusetts Announces Plans for Voluntary Disclosure Program for Settlement of Uncertain Tax Positions

Massachusetts is in the planning phase of creating a plan to allow taxpayers to disclose uncertain tax positons to the state and obtain waiver of penalties. The plan is to complete the entire process from start to finish in four months.

An “uncertain tax issue” is one for which there is no clear statutory guidance or controlling case law, and which has not been addressed by the Department in a regulation, letter ruling, or other public written statement. Further, the issue must not have been addressed as part of a prior audit of the taxpayer, a prior application for abatement or amended return filed by the taxpayer, or a prior ruling request made by the taxpayer. Further, an “uncertain tax issue” is one for which a taxpayer would be required to maintain a reserve in accordance with ASC 740: Accounting for Uncertainty in Income Taxes (formerly FIN 48).

Generally, the total amount of any potential tax liability attributable to the uncertain tax issue(s) must be $100,000 or more, exclusive of interest and/or penalties.

Tax returns which are currently under audit or for which the taxpayer has received notice of an impending audit are not eligible for the program.

The Department will consider settlement of an uncertain tax issue(s) where: (1) the taxpayer has presented its position on the issue(s) and the Department agrees that the tax treatment of the issue(s) is uncertain; and (2) the taxpayer has fully disclosed and documented the issue(s) and the facts associated with that issue(s).

Initially, a taxpayer may contact the Department on an anonymous basis to identify and explain the uncertain tax issue(s) for which it seeks resolution. The Department will review the information provided and make a determination as to whether it is appropriate to commit resources to the matter and to attempt to negotiate a settlement of the uncertain tax issue(s).

If the Department agrees to accept the matter into the program, the taxpayer will have 45 days from the date of the acceptance letter to decide whether it wishes to proceed. The taxpayer must notify the Department of its decision in writing within 45 days of the date of the acceptance letter.

If the taxpayer decides to proceed with the program, it will be required to identify itself at the time that it notifies the Department of its decision. In addition, the taxpayer will also be required to provide a detailed proposal for settling the uncertain tax issue(s). The taxpayer’s settlement proposal should take into consideration the impact, if any, that the proposed settlement may have on any net operating loss and/or credit carryovers. The taxpayer may include in its proposal a provision regarding the resolution of future tax periods. While the Department will consider the inclusion of such a provision in any potential settlement, the Department is not required under this program to settle future tax periods.

The formal procedures that Massachusetts will follow under this Voluntary Disclosure Program are still in development, but as discussed above, these are the draft rules that the State intend to apply.

Should you have any questions about how this program will affect your company, please contact your Marcum Tax Professional.