Sales, Use and International Tax Activity Update - August 2010

Interesting Note on Massachusetts Penalty Interest

The Massachusetts Department of Revenue (DOR) has issued guidance stipulating that interest begins to accrue on penalties assessed under G.L. c. 62C, §§ 35A–35E, for underpayment of tax, inconsistent reporting of income, and fraudulent tax reduction plans 31 days after the notice of assessment of penalties and will continue to accrue on any unpaid amounts until the penalty is paid in full. Circumstances under which such penalties apply include when:

1. a taxpayer substantially understates a tax liability or underpays taxes due to negligence or disregard of Massachusetts laws, including public written statements of the Commissioner of the DOR;
2. a preparer with respect to a tax return or claim for abatement or refund knows or reasonably should know that the return or claim reflects a position or positions unsupported by Massachusetts law and the position was not disclosed or was frivolous or a preparer willfully attempts to understate tax liability or demonstrates a careless, reckless or intentional disregard of Massachusetts tax laws or written public statements issued by the Commissioner;
3. a taxpayer takes a tax return reporting position on an issue in Massachusetts that is inconsistent with a position taken in another state, and the governing law relating to that issue is the same in all material respects in Massachusetts and the other state; and
4. a person organizes, assists in the organization of, sells, or assists in the sale of any plan or arrangement and makes or furnishes, or causes another person to make or furnish, a false, fraudulent or deliberately misleading statement with respect to the allowability of any deduction or credit, the excludability of any income, or the securing of any other tax benefit, including the avoidance of a filing requirement.

The penalties generally apply to situations where a return has been filed.

Directive 10-4, Massachusetts Department of Revenue, July 12, 2010.

The Directive 10-4, can be viewed on the Massachusetts Department of Revenue Web site.

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