Amendment #1 to H.2602

HOUSE . . . . . . . No. 4942

The Commonwealth of Massachusetts
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HOUSE OF REPRESENTATIVES, October 25, 2018.

The committee on Ways and Means, to whom was referred the Bill relative to innocent spouses (House, No. 2602), reports recommending that the same ought to pass with an amendment substituting therefor the accompanying bill (House, No. 4714).

For the committee,

JEFFREY SÁNCHEZ.

FILED ON: 10/25/2018

HOUSE . . . . . . . . . . . . . . . No. 4942

The Commonwealth of Massachusetts

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In the One Hundred and Ninetieth General Court
(2017-2018)

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An Act relative to innocent spouses.

Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:

SECTION 1. Chapter 62C of the General Laws, as appearing the 2016 Official Edition, is hereby amended by striking out section 84 and inserting in place thereof the following section:-

Section 84. (a) Notwithstanding section 6 of chapter 62C, an individual who has made a joint return may elect to seek relief under the procedures prescribed under subsection (b), subsection (c), or both subsections, concurrently.

(b)(1) An individual filing a joint return under this chapter for the taxable year shall be relieved of liability for an understatement of tax, including interest, penalties and other amounts, for the taxable year on which such understatement was reported, to the extent such liability is attributable to such understatement, if:

(i) the understatement is attributable to erroneous items of the other individual filing the joint return,

(ii) the individual seeking relief from liability establishes that in signing the return he or she did not know, and had no reason to know, that there was such understatement,

(iii) taking into account all the facts and circumstances, it is inequitable to hold the individual seeking relief from liability liable for the deficiency in tax for such taxable year attributable to such understatement, and

(iv) the individual seeking relief from liability elects, in such form as the commissioner may prescribe, the application of this subsection not later than 2 years after the commissioner has begun collection activities, as defined by the commissioner, with respect to the individual making the election.

(2) If an individual who, but for clause (ii) of paragraph (1), would be relieved of liability under paragraph (1) establishes that in signing the return such individual did not know, and had no reason to know, the extent of such understatement, then such individual shall be relieved of liability for the tax, including interest, penalties and other amounts, for such taxable year to the extent that such liability is attributable to the portion of such understatement of which such individual did not know and had no reason to know.

(c)(1) If an individual who has made a joint return for a taxable year elects the application of this subsection, the individual's liability for a deficiency which is assessed with respect to the return shall not exceed the portion of such deficiency properly allocable to the individual under paragraphs (8) through (12), inclusive.

(2) Each individual who elects the application of this subsection shall have the burden of proof with respect to establishing the portion of a deficiency allocable to such individual.

(3) An individual shall only be eligible to elect the application of this subsection if:-

(i) at the time such election is filed, such individual is no longer married to, or is legally separated from, the individual with whom such individual filed the joint return to which the election relates, or

(ii) such individual was not a member of the same household as the individual with whom such joint return was filed at any time during the 12-month period ending on the date such election is filed.

(4) If the commissioner demonstrates that assets were transferred between individuals filing a joint return as part of a fraudulent scheme by such individuals, an election under this subsection by either individual shall be invalid, and section 6 of chapter 62C shall apply to the joint return.

(5) An election under this subsection for any taxable year may be made at any time after a deficiency for such year is asserted but not later than 2 years after the commissioner has begun collection activities with respect to the individual making the election.

(6) If the commissioner demonstrates that an individual making an election under this subsection had actual knowledge, at the time such individual signed the return, of an item giving rise to a deficiency or portion thereof, which is not allocable to such individual under paragraphs

(8) through (12), inclusive, such election shall not apply to such deficiency or portion. This subparagraph shall not apply where the individual with actual knowledge establishes that such individual signed the return under duress.

(7) Notwithstanding any other provision of this subsection, the portion of the deficiency for which the individual electing the application of this subsection is liable, without regard to this paragraph, shall be increased by the value of a disqualified asset transferred to the individual. For purposes of this paragraph the term “disqualified asset” means any property or right to property transferred to an individual making the election under this subsection with respect to a joint return by the other individual filing such joint return if the principal purpose of the transfer was the avoidance of tax or payment of tax; provided, that a transfer, other than a transfer pursuant to a decree of divorce or separate maintenance or a written instrument incident to such a decree or to a transfer which an individual establishes did not have as its principal purpose the avoidance of tax or payment of tax, which is made less than 1 year before the first letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the department of revenue is sent shall be presumed to have as its principal purpose the avoidance of tax or payment of tax.

(8) The portion of a deficiency on a joint return allocated to an individual shall be the amount which bears the same ratio to such deficiency as the net amount of items taken into account in computing the deficiency and allocable to the individual under subsection (10) bears to the net amount of all items taken into account in computing the deficiency.

(9) If a deficiency or portion thereof is attributable to the disallowance of a credit or a tax other than the tax imposed by chapter 62, required to be included with the joint return, and such item is allocated to 1 individual under paragraph (10), such deficiency or portion thereof shall be allocated to such individual. Any such item shall not be taken into account under paragraph (8).

(10)(i) Except as provided in paragraphs (11) and (12), an item giving rise to a deficiency on a joint return shall be allocated to individuals filing the return in the same manner as it would have been allocated if the individuals had filed separate returns for the taxable year.

(ii) An item otherwise allocable to an individual under clause (i) shall be allocated to the other individual filing the joint return to the extent the item gave rise to a tax benefit on the joint return to the other individual.

(iii) The commissioner may provide for an allocation of an item in a manner not otherwise prescribed by this paragraph if the commissioner establishes that such allocation is appropriate due to fraud of 1 or both individuals.

(11) If an item of deduction or credit is disallowed in its entirety solely because a separate return is filed, such disallowance shall be disregarded and the item shall be computed as if a joint return had been filed and then allocated appropriately between the spouses.

(12) If the liability of a child of a taxpayer is included on a joint return, such liability shall be disregarded in computing the separate liability of either spouse and such liability shall be allocated appropriately between the spouses.

(d) If after taking into account all the facts and circumstances, the commissioner determines it is inequitable to hold the individual liable for any unpaid tax or any deficiency, or any portion thereof, and relief is not available to such individual under subsection (b) or (c), the commissioner may relieve such individual of such liability.

(e)(1) Except as provided in paragraphs (2) and (3), notwithstanding any general or special law to the contrary, other than section 6 of chapter 58A, section 37 of chapter 62C or sections 37A and 37C of chapter 62C, a credit or refund shall be allowed or made to the extent attributable to the application of this section.

(2) In the case of an election under subsection (b) or (c) or of a request for equitable relief under subsection (d), if a decision of a court in a prior proceeding for the same taxable year has become final, such decision shall be conclusive except with respect to the qualification of the individual for relief which was not an issue in such proceeding. This paragraph shall not apply if the court determines that the individual participated meaningfully in such prior proceeding.

(3) No credit or refund shall be allowed as a result of an election under subsection (c).

(f) The commissioner shall prescribe such regulations as are necessary to carry out the provisions of this section, including:

(1) regulations providing methods for allocation of items other than the methods under clause (iii) of paragraph (10) of subsection (c), and

(2) regulations providing the opportunity for an individual to have notice of, and an opportunity to participate in, any administrative proceeding with respect to an election made under subsection (b) or (c) or a request for equitable relief made under subsection (d) by the other individual filing the joint return.