By Joshua Caswell
The Massachusetts Department of Revenue (DOR) issued a Technical Information Release on June 17, 2019, (TIR 19-7) intended to inform taxpayers and practitioners of the DOR’s official position on the treatment of Qualified Opportunity Fund investments.
The TIR provides that because the Massachusetts personal income tax rules (including partnership tax rules) are based on the IRC as amended on Jan. 1, 2005, and not on the current IRC, individuals and partnerships that invest in QOFs won’t be able to take advantage of the tax benefits enumerated under Subchapter Z. For personal income tax purposes, a taxpayer who elects to defer gains under Subchapter Z must recognize such gains for Massachusetts income tax purposes in the year of the sale or exchange giving rise to such gains. Additionally, the basis adjustment rules under Subchapter Z don’t apply in calculating the amount of capital gains that must be recognized (for Massachusetts income tax purposes) on the sale or exchange of a QOF investment.
The TIR also provides that because Massachusetts generally conforms to the IRC as currently in effect for corporations, for corporate excise tax purposes taxpayers who elect to defer capital gains under Subchapter Z will also defer such gains for Massachusetts purposes. Similarly, the federal basis adjustment rules under Subchapter Z will apply to corporations for Massachusetts purposes.
Investment Through Corporation
Generally, a corporation subject to taxation in Massachusetts is subject to a tax based on its net income (as defined in M.G.L c. 63, Section 30) and on either the value of its tangible property or its net worth. Together, these two measures of tax constitute the Massachusetts corporate excise tax. The effective tax rate on a corporation’s net income is 8%, and the tangible personal property or net worth is taxed at $2.60 per $1,000 of the value. The minimum tax is $456.
As with all planning decisions, there are myriad factors to consider when evaluating an investment in a QOF. Based on TIR 19-7, individuals and partnerships subject to taxation in Massachusetts should give thought to whether such an investment should be made through a corporation.
Joshua Caswell is an attorney with Howland Evangelista Kohlenberg LLP.
