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The 191st General Court of the Commonwealth of Massachusetts

Section 84: Understatement of tax on joint return; liability for deficiencies; relief for portion not attributable to spouse; conditions

Section 84. (a) Notwithstanding section 6 of chapter 62C, an individual who has made a joint return may elect to seek relief 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 the 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, the individual did not know, and did not have reason to know, that there was an 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 the 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 the individual did not know, and did not have reason to know, the extent of the understatement, then the individual shall be relieved of liability for the tax, including interest, penalties and other amounts, for the taxable year to the extent that the liability is attributable to the portion of the understatement of which the individual did not know and did not have 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 that is assessed with respect to the return shall not exceed the portion of the deficiency that is properly allocable to the individual under paragraphs (8) to (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 the individual.

(3) An individual shall only be eligible to elect the application of this subsection if: (i) at the time the election is filed, the individual is no longer married to, or is legally separated from, the individual with whom the individual filed the joint return to which the election relates; or (ii) the individual was not a member of the same household as the individual with whom the joint return was filed at any time during the 12–month period ending on the date the 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 the 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 the year is asserted but not more than 2 years after the commissioner has begun collection activities, as defined by the commissioner, 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 the individual signed the return, of an item giving rise to a deficiency or portion thereof, which is not allocable to the individual under paragraphs (8) to (12), inclusive, the election shall not apply to the deficiency or portion; provided, however, that this subparagraph shall not apply where the individual with actual knowledge establishes that the 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'' shall mean any property or right to property that is 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, however, 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 that an individual establishes did not have as its principal purpose the avoidance of tax or payment of tax, that is made less than 1 year before the first letter of proposed deficiency that 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 that bears the same ratio to the 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: (i) attributable to the disallowance of a credit or a tax other than the tax imposed by chapter 62; (ii) required to be included with the joint return; and (iii) the item is allocated to 1 individual under paragraph (10), the deficiency or portion thereof shall be allocated to the individual. Any such item shall not be taken into account under paragraph (8).

(10)(A) 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.

(B) An item otherwise allocable to an individual under clause (A) 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.

(C) The commissioner may provide for an allocation of an item in a manner not otherwise prescribed by this paragraph if the commissioner establishes that the 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, the 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, the liability shall be disregarded in computing the separate liability of either spouse and the liability shall be allocated appropriately between the spouses.

(d) If after taking into account all the facts and circumstances, the commissioner determines that 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 the individual under subsection (b) or (c), the commissioner may relieve the individual of the liability.

(e)(1) Except as provided in paragraphs (2) and (3), and notwithstanding any other general or special law to the contrary, except section 6 of chapter 58A or sections 37, 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, the decision shall be conclusive except with respect to the qualification of the individual for relief that was not an issue in the proceeding. This paragraph shall not apply if the court determines that the individual participated meaningfully in the prior proceeding.

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

(f) The commissioner shall prescribe regulations necessary to carry out the provisions of this section, including: (i) regulations providing methods for allocation of items other than the methods under clause (C) of paragraph (10) of subsection (c); and (ii) 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.