Saturday, April 10, 2010

Massachusetts Follows IRS' Lead: Massachusetts Taxpayers in Federally Designated Disaster Areas Receive Additional Time to File and Pay

SALT Alert: If you are a resident of, or have business operations in, Massachusetts you are probably aware by now that President Obama recently declared certain counties in Massachusetts federal disaster areas due to severe storms and flooding that plagued these counties for several weeks in March. The Massachusetts counties that are designated as federal disaster areas include the counties of Bristol, Essex, Middlesex, Norfolk, Plymouth, Suffolk and Worcester. As a resident of one of these counties, I can attest to those of you who reside elsewhere, that indeed, the storms and flooding were relentless. My own backyard resembled a swimming pool for much of March and into April, and I know of several homes, and even entire neighborhoods, in my town that sustained significant flood damage. So, I suppose before launching into a discussion of today’s topic, I should say “thank you, Mr. President” for recognizing that yes, indeed, we were negatively impacted by the severe storms and flooding, “thank you, IRS” for granting those of us who reside in one of the designated counties additional time to file our federal tax returns, “thank you, Governor Patrick” for following the President’s lead, and finally, “thank you, Massachusetts Department of Revenue” for following the IRS’ lead and providing us a similar extension of time to file certain Massachusetts returns. But this isn’t the Oscars, and the purpose of my discussion today isn’t just to say “thank you”, but to provide a more in-depth explanation of the specifics of the “disaster area” extension as it applies to certain Massachusetts returns and payments.

Tax Filings and Payments to which May 11th Extension Applies and Exclusions
On April 2, 2010, following the President’s and Governor’s declaration, the Massachusetts Department of Revenue (“the Department”) issued Technical Information Release (“TIR”) 10-7, Extension of Time for Certain Tax Filings and Payments for Taxpayers Affected by March 2010 Severe Storms and Flooding, in which the Department announced that it would grant an automatic extension of time until May 11, 2010 for certain tax filings and payments. The guidance in TIR 10-7 is largely consistent with similar guidance articulated in an IRS Release issued on March 31, 2010. In summary, the Massachusetts extension applies to most tax returns and tax payments (including estimated tax payments) that either have an original or extended due date occurring between March 12, 2010 and May 10, 2010. The extension applies primarily to the April 15th deadline for filing 2009 individual income tax returns and making individual income tax and estimated tax payments. However, the extension is not limited to individual taxpayers. Businesses and non-profit corporations with a January 31st tax year-end who are subject to the Massachusetts corporate excise (income) tax or who file unrelated business income tax returns are also entitled to the automatic May 11th extension. Also entitled to the May 11th extension are estates and trusts, partnerships, and S corporations that file Massachusetts tax returns. Finally, individuals and businesses who are subject to filing a Massachusetts use tax return (either Massachusetts Form ST-10 or ST-11), are also entitled to the May 11th extension for purposes of both filing their use tax return and making the payment due with the return.

The automatic extension does not apply, however, to trustee tax returns and payments, including sales or use tax returns and payments, meals tax returns and payments, room occupancy tax returns and payments, and employer and other withholding tax returns and payments. Note that the distinction between the use tax, for which the May 11th extension applies, and the sale & use tax, for which the extension does not apply, is that the use tax is a business tax (a liability of the filer), whereas the sales tax is a trustee tax (one which is collected by the vendor on behalf of the state and remitted to the state). Another important exception to the extension applies to taxpayers who previously filed their returns, but have yet to remit payment for the tax liability due with their returns. It appears that those taxpayers will still be required to remit, by April 15th, any remaining tax liability shown as due on the previously filed return.

Extensions Beyond May 11th
May 11th is also the deadline for filing for an automatic extension of time to file for those individuals and businesses who wish to extend the filing of their returns beyond this extended date. It is important to note that taxpayers who request an additional time to file beyond May 11th will not receive additional time beyond what they would have received absent the disaster relief provision. For example, individual taxpayers who would normally be required to file by April 15th and who file an extension request by May 11th will only have until October 15, 2010 to file their final returns. Although interest and penalties will not accrue for any taxes that would have been due by April 15th but are remitted on or before May 11th, any taxpayer that does not meet the May 11th due date will owe interest and penalties dating back to the original tax return or tax payment due date. Finally, keep in mind that an extension is only for the filing of the final return, not for the payment of any tax liability expected to be due.

Affected Taxpayers and Procedure
The TIR defines “affected taxpayers” as individuals who live, and businesses whose principal place of business is located, in any of the counties with federal disaster designation. Certain other individuals and businesses, such as those whose tax records are located in any of these counties may also qualify as “affected taxpayers”, as well as residents of states contiguous to Massachusetts who are subject to filing a Massachusetts non-resident return and reside in federally declared disaster areas (e.g., residents of certain Rhode Island counties, see TIR 10-7 for additional guidance). Affected taxpayers do not need to take any action on April 15th. The Department’s computer systems will automatically identify taxpayers located in the covered disaster areas and apply automatic filing and payment relief for returns filed electronically. Taxpayers who are not able to or choose not to file electronically, should include the notation “2010 FLOODING” written in red ink at the top of their returns or forms. Any affected taxpayer who files and pays by the extended deadline and still receives late filing or payment penalties should contact the Department’s Customer Service Bureau.

Sylvia's Summation
As is the case with any administrative pronouncement, the TIR intends to provide an overview and address the main questions taxpayers may have but cannot address every situation or concern. For more information, please see the following:

IRS Press Release, MA-2010-15, Massachusetts Severe Storm and Flooding Victims Have Until May 11 to File Their Tax Returns, issued March 31, 2010

TIR 10-7: Extension of Time for Certain Tax Filings and Payments for Taxpayers Affected by March 2010 Severe Storms and Flooding, issued April 2, 2010

Commonly asked questions about the tax filing extension to May 11

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