2014 Massachusetts SCorporation Excise Return … Massachusetts SCorporation Excise Return Form 355S Massachusetts has an electronic filing requirement for this form. See TIRs 05-22

Commonwealth of Massachusetts Department of Revenue

2014MassachusettsS CorporationExcise ReturnForm 355SMassachusetts has an electronic filing requirement for thisform. See TIRs 05-22 and 09-18 for further information.

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What kind of help is availableThe instructions in the Department of Revenue’s tax forms should provide answers to most taxpayer questions. If you have questions about com -pleting your Massachusetts tax form, you can call us at (617) 887-MDOR or toll-free in Massachusetts at 1-800-392-6089 Monday through Friday.DOR’s website at www.mass.gov/dor is also a valuable resource for tax information 24 hours a day. Thousands of taxpayers use DOR’s website toe-mail and re ceive prompt answers to their general tax inquiries. Interactive applications that allow taxpayers to check the status of their refundsand review their quarterly estimated tax payment histories are available through our website or by calling our main information lines listed above.

Where to get forms and publicationsTo obtain Massachusetts forms and publications by phone, call the Department’s main information lines at (617) 887-MDOR or toll-free inMassachusetts at 1-800-392-6089. Please note that many forms and publications are available 24 hours a day by calling the Department’s

automated forms request system at the numbers listed above.

Many Massachusetts tax forms and publications are available via the DOR website. The address for the Department’s website iswww.mass.gov/dor.

For general tax information. Please call (617) 887-MDOR or toll-free in Massachusetts 1-800-392-6089. These main in for mationlines can provide assistance with the following:◗ abatements ◗ corporate excise ◗ fiduciary taxes ◗ personal income taxes◗ bills and payments ◗ estate taxes ◗ nonresident information ◗ refunds◗ business registration ◗ estimated taxes ◗ partnerships ◗ withholding◗ business taxes

For help in one of the following specific areas. Please call the number listed below.◗ Certificates of Good Standing (617) 887-6550 ◗ Installment sales (617) 887-6950◗ Teletype (TTY) (617) 887-6140 ◗ Small Business Workshop (617) 887-5660◗ Vision-impaired taxpayers can contact any DOR office to receive assistance.◗ Upon request, this publication is available in an alternative format. Please send your request to: Office of Diversity and Equal Opportunity, PO Box9557, Boston, MA 02114-9557.

To report allegations of suspected misconduct or impropriety involving Department of Revenue employees, please call the Inspectional Services Division’s Integrity Hot Line at 1-800-568-0085 or write to PO Box 9568, Boston, MA 02114-9568.

Major 2014Tax Law ChangesMarket Based SourcingThe most significant change for tax years begin-ning on or after January 1, 2014 is that in deter-mining the sales factor of the corporateapportionment formula, sales other than sales oftangible personal property are in Massachusetts ifthe corporation’s market for the sale is in theCommonwealth. A corporation’s market for thesale of a service is in Massachusetts if and to theextent the service is delivered to a location inMassachusetts. The rule governs the sale and li-cense of intangible property, and applies to sev-eral other types of transactions.

This change is the result of a statutory change, atG.L. c. 63, § 38. The Department has re-promul-gated the Apportionment of Income regulation,830 CMR 63.38.1 (in particular section (9)(d) ofthe regulation), with specific rules for implement-ing these statutory changes.

Technical Conforming Changes toG.L. c. 62C, Tax Administration(Applicable to Corporations Subjectto Combined Reporting)There are several statutory technical correctionsthat have been enacted with respect to corpora-tions that are required to file corporate excise re-turns as members of a combined group. Theamendments make clear that the Department maytreat the principal reporting corporation as theagent of the members and all corporations in-cluded in the return of a combined group for allaspects of the individual group members’ corpo-rate excise liability, including the income mea-sure, the non-income measure, and the minimumexcise, as applicable to each taxpayer. The princi-pal reporting corporation is the agent with respectto all notices, waivers and other actions author-ized or required. However, the Department is notprecluded from taking separate procedural ac-tions or directing notices to any individual mem-ber(s) of the combined group that file or arerequired to file a combined report. By contrast, acombined report does not constitute a filing of areturn for any business corporation that is part ofa combined report but also files or is required tofile its own return. The amendments can be foundin St. 2014, c. 165, §§ 96 104. See TIR 14-11 formore information.

Utility CorporationsThe public utility excise, formerly G.L. c. 63, sec.52A, has been repealed, and corporations thatwere formerly subject to that excise now file

under the general corporate excise provisions ofG.L. c. 63. Because utility corporations were notallowed to carry forward net operating lossesunder G.L. c. 63, § 52, such corporations cannotdeduct any NOL for tax years beginning beforeJanuary 1, 2014. However, a former utility corpo-ration that becomes taxable as a business corpo-ration under G.L. c. 63, § 39 will be allowed tocarry forward a post-2013 NOL that it has in-curred, subject to applicable limitations on busi-ness corporation loss carryovers.

Extension of Brownfields CreditThe Brownfields Credit, previously scheduled toexpire on August 5, 2013, is extended for five ad-ditional years. To qualify for a Brownfields Credit,the taxpayer must “commence and diligently pur-sue” the relevant environmental response ac-tion(s) on or before August 5, 2018. The netresponse and removal costs must be incurredprior to January 1, 2019.

Community Investment Tax CreditA Community Investment Tax Credit is allowedfor tax years beginning on or after January 1,2014 for qualified investments (certain cash con-tributions made to a community developmentcorporation, community support organization, ora community partnership fund) made on or afterJanuary 1, 2014. The Community Investment TaxCredit is equal to 50% of the total qualified invest-ment made by the taxpayer for the taxable year.No credit is allowed to a taxpayer that makes aqualified investment of less than $1,000. In anyone taxable year, the total amount of the creditthat may be claimed by a taxpayer that makesqualified investments cannot exceed $1,000,000.The credit is refundable, or, alternatively, may becarried forward 5 years. The credit is set to expireDecember 31, 2019.

Which SCorporations MustFile Electronically?S corporations that have total revenues of $100,000or more must file electronically. In addition, an Scorporation must file electronically unless all of itsshareholders are resident individuals. An S corpo-ration must also file electronically if it is withhold-ing on a shareholder’s distributive share or if itreceived distributive share upon which a lower-tierentity has paid withholding or estimated taxes. Formore information about the E-File mandates, seeTIRs 04-30, 05-22 and 09-18.

How IsS CorporationIncome Taxed?Entities that are S corporations for federal purposesare S corporations for Massachusetts purposes,except that Massachusetts security corporationsand public utility corporations cannot be S corpo-rations. Items of S corporation income, loss, anddeduction are passed through the S corporationto the shareholders, and reported and taxed ontheir return. S corporations are liable for the non-income measure of the corporate excise, and forthe income measure of the corporate excise on anyincome that is taxable to the S corporation feder-ally. S corporations owe at least the minimum tax.

S corporations with total receipts of $6 million ormore are liable for the income measure of the cor -porate excise at the following rates:

◗ 1.87% on net income subject to tax if total re-ceipts are $6 million or more, but less than $9 mil-lion; or

◗ 2.8% on net income subject to tax if total re-ceipts are $9 million or more.

To determine if an S corporation is liable for theincome measure of the corporate excise, completeMassachusetts Schedule S, lines 1 through 17. Ifline 17 of Schedule S is at least $6 million, an in-come measure of corporation excise will be due.If line 17 of Schedule S is less than $6 million,Schedule E is not required. If an S corporation andany other entity share common ownership and areengaged in a unitary business, then the total re-ceipts less inter-company transactions of all suchentities must be combined according to the rulesof Regulation 830 CMR 62.17A.1(11)(e) and (f),to determine the dollar amount of such S corpora-tion’s total receipts. “Total receipts” means grossreceipts or sales, less returns and allowances, andincludes dividends, interest, royalties, capital gainnet income, rental income and all other income.

If an S corporation that is liable for the incomemeasure is not part of a combined group (see be -low), it must complete Massachusetts Schedule Ewith Form 355S and must complete a pro-formaU.S. 1120 which must be available upon request.

Requirement to Filea Combined ReportAn S corporation that is doing business in the stateis subject to combined reporting within the mean-ing of Ch. 63, sec.32B, when it is engaged in a uni-tary business with one or more other corporations,

3General Information

including one or more S corporations. In suchcases, if the S corporation is liable for an incomemeasure of excise, it is required to be included in acombined report, and is to compute its net incomesubject to tax and its income measure along withthe other members of the group on Form 355U.Further, even where an S corporation is not itself li-able for an income measure of excise, it is requiredto include its income in a combined report if anymember of the combined group is a C corporationthat is subject to Massachusetts tax.

Where one or more S corporations that are taxablein Massachusetts are members of a combinedgroup that is composed entirely of S corporationsand the S corporations are not liable for the incomemeasure of excise, the S corporations are not re-quired to file Form 355U. Further, where one ormore S corporations that are taxable in Massachu -setts are members of a combined group that iscomposed entirely of one or more S corporationsand one or more C corporations and the S corpo-rations are not liable for the income measure ofthe excise and each of the C corporations is nottaxable in Massachusetts, the S corporations arenot required to file Form 355U. (Note that in thelatter cases, Form 355U would be required irre-spective as to whether the S corporations were li-able for the income measure of the excise if one ormore of the C corporations were subject to Mass-achusetts tax). In any case where one or more Scorporations that are members of a combinedgroup are not required to file Form 355U, suchmembers are also not required to complete Form355S, Schedule E.

The non-income measure of excise for S corpora-tions that are members of a combined group is stilldetermined on a separate company basis but fortax years beginning on or after January 1, 2011this is calculated on schedules attached to theForm 355U unless the S corporation’s separate(U.S.) taxable year ends at a different time than thetaxable year of the combined report. An S corpo-ration that pays both the income and non-incomemeasure of excise with Form 355U submits Form355S as an informational return, attaching Sched-ules S and SK-1, although no additional tax is duewith that filing. See the instructions for Registra-tion Information, line 4, for additional information.

Who Must Fileand Pay CorporateExcise?The purpose of the corporate excise is to requirepayment for the right granted by the laws of theCommonwealth to exist as a corporation and forthe enjoyment under the protection of the Com-

monwealth’s laws of the powers, rights, privilegesand immunities derived by reason of the corporateform of existence and operation. The corporate ex -cise is due and payable when any of the followingconditions are met:

◗ the corporation actually does business withinthe Commonwealth;

◗ the corporation exercises its charter within theCommonwealth;

◗ the corporation owns or uses any part of itscapital, plant or other property in the Common-wealth; or

◗ the corporation owns and/or rents real or tangi -ble personal property as a lessor in Massachusettseven without having a usual place of business here.

Massachusetts S corporations other than FinancialInstitution S corporations must file Form 355Swith Schedule S and one Schedule SK-1 for eachresident and nonresident shareholder. Schedule Smust be completed to report the S corporation’sdistributive income. The S corporation must alsoprovide a Schedule SK-1 to each shareholder to in-form the shareholder of the distributive share ofitems of income, loss, deduction and credit for re-porting on the shareholder’s Massachusetts return.

If an S corporation is a Financial Institution, it mustfile Form 63FI, Financial Institution Excise Return.It must enclose with Form 63FI Schedule S andSched ule SK-1 for each shareholder.

All Massachusetts S corporations which are not fi-nancial institutions are liable for the property mea-sure of the corporate excise or the minimum taxand must complete the relevant sections of Form355S. It must also complete Schedule E of Form355S for any income taxed at the corporate levelfor U.S. in come tax purposes, or if total receiptsare $6 million or more.

Note: Under Massachusetts law, all corporationsregistered in the Commonwealth are required tofile an Annual Report form with the Secretary ofState on or before the 15th day of the third monthafter the close of their fiscal year. Annual Reportforms can be obtained by calling (617) 727-9440.For further information on this requirement, referto M.G.L. Ch. 156B, sec. 109 and Ch. 181, sec. 4or call the Secretary of State’s Corporate Informa-tion Line at (617) 727-9640.

Each shareholder should use the information pro -vided on Schedule SK-1 to complete the share-holder’s Massachusetts tax return.

Each shareholder is taxed on the shareholder’sshare of the S corporation’s income whether dis-tributed or not. Each shareholder must report theshareholder’s distributive share of S corporationincome during the taxable year on the share-holder’s Massachusetts tax return. A full-year resi -

dent individual must file Form 1. Part-year residentindividuals and nonresident individuals must fileForm 1-NR/PY. A trust or estate must file Form 2.

What Is Nexusfor MassachusettsCorporate ExcisePurposes?A corporation that owns or uses any part of itscapital or other prop erty, exercises or continuesits charter or is qualified to, or is actually doingbusiness in Massachusetts has nexus with theCommonwealth and must pay a corporate excise.The term “doing business” as defined in M.G.L.Ch. 63, sec. 39 includes:

◗ the maintenance of a place of business;

◗ the employment of labor;

◗ the buying, selling or procuring of services orproperty;

◗ the execution of contracts;

◗ the exercise or enforcement of contract rights;and

◗ each and every act, power, right, privilege, or im -munity exercised or enjoyed in the Common-wealth, as an incident to or by virtue of the powersand privileges acquired by the nature of such or-ganizations, as well as, the buying, selling or pro -curing of services or property.

Public Law (PL) 86-272 excludes from state netincome-based tax ation those interstate activitiesconstituting mere solicitation of orders for sales oftangible personal property filled by shipment ordelivery from a point outside Massachusetts afterorders are sent outside the state for approval orre jection. A corporation that has nexus with theCommonwealth and is excluded from income-based taxation by PL 86-272 remains liable forthe non-income measure of excise.

The following are activities that ordinarily fallwithin the scope of “solicitation” under PL 86-272:

◗ activities including advertising related to gener-ating retail demand for the products of a manu-facturer or distributor by promoting the productsto retailers who order the products from a whole-saler or other middleman;

◗ carrying samples only for display or for distrib-ution without charge or other consideration;

◗ owning or furnishing automobiles to sales rep-resentatives, provided that the vehicles are usedexclusively for solicitation purposes;

4 General Information

◗ passing inquiries and complaints on to thehome office;

◗ incidental and minor advertising;

◗ checking customers’ inventories for reorder only;

◗ maintaining a sample or display area for an ag-gregate of fourteen calendar days or less duringthe tax year, provided that no sales or other activ-ities inconsistent with solicitation take place;

◗ soliciting of sales by an in-state resident repre-sentative who maintains no in-state sales office orplace of business; and

◗ training or holding periodic meetings of salesrepresentatives.

For further information on corporate nexus, referto Regulation 830 CMR 63.39.1.

Massachusetts andInternal RevenueCode DifferencesFor Massachusetts tax purposes, an S corporationis allowed only those expense deductions that anindividually owned business is allowed. Deductionsthat are itemized by an individual on Schedule A ofU.S. Form 1040 are not allowed. Neither the de-duction for a net operating loss carryover or carry -back is allowed to S corporations or to an individ -ual under Massachusetts income tax law. However,S corporations with total receipts of $6 million ormore are allowed a Massachusetts net operatingloss for purposes of calculating their additional ex -cise liability. If an S corporation is subject to thenet income measure because its receipts are over6 million dollars, then it must calculate its net in-come as if it were a C corporation.

Schedules S and SK-1 isolate income and deduc-tion items in order to produce the correct Mass-achusetts S corporation total as well as eachshareholder’s correct Massachusetts distributiveshare. These amounts often differ from those re-ported on U.S. Form 1120S and Schedule K-1.

How DoesMassachusettsTreat QualifiedS CorporationSubsidiaries(QSUB)?All federal S corporations are now subject to theentity level tax that applies to S corporations inMassachusetts under M.G.L. Ch. 63, sec. 32D, not -withstanding the entity’s legal form of organization.A QSUB does not file a separate return; rather theparent S corporation shall include the income andtake into account the activities of all qualified sub -chapter S subsidiaries for purposes of determiningits excise.

Prior to 2009, a QSUB was subject to an entity-level tax separate from its parent. However, aQSUB’s income, assets, and other attributes arenow taken into account by the QSUB’s S corpora-tion parent, together with the parent’s income, as-sets, and other attributes, in determining theparent S corporation’s Massachusetts tax liability.Transition rules apply to carryovers a QSUB mayhave generated in tax years beginning prior toJanuary 1, 2009 when it was required to file as aseparate corporation under Massachusetts law.See Regulation 830 CMR 63.30.3.

S CorporationAdditional ExciseGross income for corporate excise purposes isthe same as that defined under the U.S. IRC, asamended and in effect for the taxable year, with thefollowing additions:

◗ interest from the bonds, notes and evidencesof indebtedness of any state, including Massachusetts.

Net income is gross income less the deductions,but not the credits, allowable under the U.S. IRC.The following deductions are not allowed:

◗ dividends received (see Schedule E-1 in struc -tions); and

◗ taxes for or measured by income, franchisetaxes measured by income, franchise taxes forthe privilege of doing business and capital stocktaxes imposed by any state or U.S. territory.

The deduction for losses sustained in other tax-able years is allowed, but subject to restrictions.See Schedule NOL for further information.

S corporations with total receipts of $6 million ormore are liable for the income measure of thecorporate excise at the following rates:

◗ 1.87% (.0187) on net income subject to tax, iftotal receipts are $6 million or more, but less than$9 million; or

◗ 2.8% (.028) on net income subject to tax, iftotal receipts are $9 million or more.

To determine if an S corporation is liable for thein come measure of the corporate excise, completeMassachusetts Schedule S. If line 17 of ScheduleS is at least $6 million, complete MassachusettsSchedule E.

Are There SpecialTax Credits AvailableIn Massachusetts?Yes. Massachusetts offers several special creditsand deductions to corporations.

Under M.G.L. Ch. 63, sec. 32C, a corporation’scredits may not offset more than 50% of its ex-cise. Any credits not utilized as a result of this pro -vision may be carried over for an unlimited numberof years. This provision does not apply to the Re-search Credit, the Harbor Mainte nance Tax Credit,Low-Income Housing Credit, Historic Rehabilita-tion Credit, the Full Employment Credit, the FilmIncentive Credit or the Medical Device Credit.

Investment Tax CreditManufacturing corporations and corporations en-gaged primarily in research and development, agri-culture or commercial fishing are allowed a creditof 3% of the cost of depreciable real and tangibleproperty. Such property must have a useful life offour years or more. The property must be usedand located in Massachusetts on the last day ofthe taxable year. A corporation cannot take thecredit on property which it leases to another. Acorporation can take the credit on property whichit leases from another (for property leased andplaced in service on or after July 1, 1994). Gener-ally, eligible corporate lessees making qual ifyingleasehold improvements may claim the credit.

Note: Motor vehicles and trailers acquired on orafter January 1, 1988 and subject to the motorvehicle excise do not qualify for the InvestmentTax Credit.

A corporation may carry over to the next succeed -ing three years any unused portion of its Invest-ment Tax Credit (ITC). To claim the ITC, Schedule


H must be completed where the credit is calcu-lated. The amount of the credit is then entered onSchedule CR.

Vanpool CreditBusiness corporations are allowed a credit of30% of the cost incurred during the taxable yearfor the purchase or lease of company shuttle vansused in the Commonwealth as part of an em -ployer-sponsored ridesharing program. The shut-tle vans must be used for transporting employeesand students from their homes, or public trans-portation facilities, to their places of employmentor study.

To claim the Vanpool Credit, Schedule VP must becompleted. The amount of the credit is then en-tered on Schedule CR.

Economic Opportunity Area CreditA credit of 5% of the cost of qualifying propertypurchased for business use within an EconomicOpportunity Area (EOA) is available to businesses.To qualify for the EOA credit, the property must beused exclusively in a certified project in an EOAand must meet the same tests (4 years useful life,etc.) imposed for the 3% ITC. A certified project isa project that has been approved by the EconomicAssistance Coordinating Council (EACC). If a cor-poration participates in a qualified project and isalso eligible for the 3% ITC (see above), the cor-poration may claim either the ITC or the EOAC,but not both with respect to each item of qualify-ing property.

The 5% EOA credit cannot offset more than 50%of the excise due nor reduce the excise below theminimum tax. Any unused credit may be carriedforward for ten years.

To claim the credit, Schedule EOAC must be com -pleted and the amount of the credit entered onSchedule CR.

Research CreditA credit is allowed for corporations which madebasic research payments and/or incurred quali-fied research expenses conducted in Massachu-setts during the taxable year. A corporation takingthe research credit is limited in the amount thatcan be taken against the excise in any year. Thecredit cannot reduce the tax to less than $456.

The amount of credit is equal to:

◗ 100% of the first $25,000 of excise; and

◗ 75% of any amount of excise remaining afterthe first $25,000.

The deduction allowed to a corporation for anyresearch expenses generating a MassachusettsResearch Credit must be reduced by the amountof the credit generated. This amount is addedback to income on Schedule E, line 13.

Corporations which are members of a controlledgroup or which are under common control with anytrade or business (whether or not in corporated)are treated as a single taxpayer for purposes ofdetermining the allowable Research Credit.

See Schedule RC instructions for further informa-tion. To claim the Research Credit, Schedule RCmust be completed and the amount of the creditentered on Schedule CR.

Harbor Maintenance Tax CreditCorporations are allowed a credit against the cor-porate excise for certain harbor maintenancetaxes paid to the U.S. Customs Service pursuantto IRC sec. 4461. A corporation is eligible for thecredit if the tax paid is attributable to the ship-ment of break-bulk or containerized cargo by sea-and ocean-going vessels through a Massachusettsharbor facility.

The credit is not subject to the 50% limitation;however, it may not reduce the tax to less thanthe minimum excise of $456. A taxpayer may car-ryover any excess credit to any of the next suc-ceeding five taxable years.

See Schedule HM instructions for further informa-tion. To claim the Harbor Maintenance Tax Credit,Schedule HM must be completed and the amountof the credit entered on Schedule CR.

Brownfields Tax CreditTaxpayers are allowed a credit for amounts ex-pended to rehabilitate contaminated propertyowned or leased for business purposes and lo-cated within an economically distressed area.

Recent legislation extends the Brownfields creditto nonprofit organizations, extends the time framefor eligibility for the credit, and permits the credit tobe transferred, sold, or assigned. Under prior law,net response and removal costs incurred by a tax-payer between August 1, 1998 and August 5, 2005,were eligible for the credit provided that the envi-ronmental response action before August 5, 2005.As a result of the recent legislation, the environ-mental response action commencement cut-offdate is changed from August 5, 2013 to August 5,2018, and the time for incurring eligible costs thatqualify for the credit is extended to January 1,2019. See TIR 13-15 for more information.

The Brownfields Credit may be transferred, soldor assigned to another taxpayer with a liabilityunder chapter 62 or chapter 63, or to a nonprofitorganization.

The Department will issue a certificate to the partyreceiving the Brownfields Credit reflecting theamount of the Brownfields Credit received. Theparty receiving the Brownfields Credit must en-close the certificate with each tax return in whichthe credits are being applied. Certificate application

forms and additional information are available atwww.mass.gov/dor.

The Brownfields Credit cannot offset more than50% of the excise due nor reduce the excise be -low the minimum tax. Any unused credit may becarried forward for five years.

If you qualify for this credit, you must have com-pleted Schedule BCA, Brownfields Credit Applica-tion, and received certificate number from DOR.Be sure to enter the DOR issued certificate num-ber in the space provided on Schedule CR.

Low-Income Housing CreditThis credit is administered through the Massachu -setts Department of Housing and Community De-velopment (DHCD). The Low-Income HousingCredit is available to taxpayers that claim a U.S.credit for the construction or development of low-income housing. The state credit is taken over fiveyears. The amount of credit a taxpayer may claimfor a qualified Massachusetts project is allocatedby the DHCD and is based on a total pool of moneyawarded to the Commonwealth. In order to claimthe credit, a copy of the eligibility statement issuedby DHCD must be available upon request.

The LIHC is not subject to the 50% limitation rulefor corporate taxpayers. If the taxpayer disposes ofthe property generating the LIHC, a portion of thecredit may be subject to recapture.

For further information regarding this credit, con-tact the Department of Housing and CommunityDevelopment, Division of Private Housing, at(617) 727-7824.

To claim the Low-Income Housing Credit, sup-porting documentation must be enclosed with thereturn and the amount of the credit entered onSchedule CR.

Historic Rehabilitation CreditEffective for years beginning on or after January1, 2005 and ending on or before December 31,2022, taxpayers may be eligible for the HistoricRehabilitation Credit (HRC). To claim this credit, ahistoric rehabilitation project must be completeand have been certified by the Massachusetts His-torical Commission. Unused portions of the creditmay be carried forward for a maximum of fiveyears. This credit may be transferred or sold to an-other taxpayer.

The HRC is not subject to the 50% limitation rulefor corporate taxpayers. If the taxpayer disposesof the property generating the HRC, a portion ofthe credit may be subject to recapture.

For further information, see Regulation 830 CMR63.38R.1, Massachusetts Historic RehabilitationTax Credit.


To claim the Historic Rehabilitation Credit, sup-porting documentation must be enclosed with thereturn and the amount of the credit entered onSched ule CR.

Film Incentive CreditFor taxable years beginning on or after January 1,2006 and before January 1, 2023, Massachusettsallows two credits for motion picture productioncompanies who meet certain qualification require -ments. Production companies who incur at least$50,000 of production costs in Massachusetts areeligible for income and corporate excise tax cred-its equal to 20% of the total Massachusetts payrollfor the production, excluding salaries of $1 mil-lion and higher. In addition, production companieswhose Massachusetts production expenses ex-ceed 50% of the total production cost receive anincome and corporate excise tax credit of 25% ofthe total Mass achusetts production expense. Sup -porting documentation must be available to theDepartment of Revenue upon request.

For further information on the Film IncentiveCredit, see TIR 07-15. To claim the Film IncentiveCredit, enter the Certificate Number issued by theDepartment of Revenue and the amount of thecredit on Schedule CR. Certificate applicationforms and additional information are available atwww.mass.gov/dor.

Medical Device CreditThe Medical Device Credit is equal to 100% of theuser fees actually paid to the United States Foodand Drug Administration (USFDA) by a medical de -vice company during the taxable year for which thetax is due for pre-market submissions (e.g., appli-cations, supplements, or 510(k) submissions) tomarket new technologies or upgrades, changes,or enhancements to existing technologies, devel-oped or manufactured in Massachusetts.

For further information on the Medical DeviceCredit, see TIR 06-22. To claim the Medical De-vice Credit, enter the Certificate Number issuedby the Department of Revenue and the amount ofthe credit on Schedule CR. Certificate applicationforms and additional information are available atwww.mass.gov/dor.

Life Science Company InvestmentTax CreditFor taxable years beginning on or after January 1,2009, a new Investment Tax Credit (ITC) may beavailable corporate excise taxpayers.

This credit, which is available to certified life sci-ences companies only to the extent authorizedpursuant to the Life Sciences Tax Incentive Pro-gram, is equal to 10% of the cost of qualifyingproperty acquired, constructed or erected during

the taxable year and used exclusively in the Com-monwealth.

The refundable ITC can apply to purchases madeon or after January 1, 2009 even if a constructionproject started before that date. The scope ofqualifying property for purposes of the new creditis the same as that provided by the existing ITCunder M.G.L. Ch. 63, sec. 31A.

Life sciences companies or persons also qualify-ing for the Economic Opportunity Area Credit(EOAC) for the same property may only take suchEOAC to the extent of an additional 2% of the costof the qualifying property. Corporations takingthese credits are not allowed to take the ITCunder M.G.L. Ch. 63, sec. 31A or the Low-IncomeHousing Credit under M.G.L. Ch. 63, sec. 31H forthe same qualifying property.

If a life sciences ITC exceeds the tax otherwisedue under the corporate excise, as applicable, 90percent of the balance of such credit may, at theoption of the taxpayer and to the extent author-ized pursuant to the Life Sciences Tax IncentiveProgram, be refundable to the taxpayer for the taxyear in which the qualified property giving rise tosuch credit is placed in service. If such refund iselected by the taxpayer, then the carryover provi-sions for this credit that would otherwise applyshall not be available.

For further information, see TIR 08-23. Theamount of this credit must be entered on Sched-ule CR.

Life Science Company FDA UserFees CreditFor taxable years beginning on or after January 1,2009, a new credit may be available to corporateexcise tax payers for user fees paid on or afterJune 16, 2008 to the U. S. Food and Drug Admin-istration (U.S.F.D.A.) upon submission of an ap-plication to manufacture a human drug in theCommonwealth.

This credit, which is available to certified life sci-ences companies only to the extent authorizedpursuant to the Life Sciences Tax Incentive Pro-gram, is equal to 100% of the user fees actuallypaid by the taxpayer, as specified in the certifica-tion, and may be claimed in the taxable year inwhich the application for licensure of an estab-lishment to manufacture the drug is approved bythe U.S.F.D.A. To be eligible for the credit, morethan 50% of the research and development costsfor the drug must have been incurred in Mass-achusetts.

Taxpayers may use the FDA user fees credit to re-duce their tax to zero. To the extent authorized pur-suant to the Life Sciences Tax Incentive Program,90% of the balance of credit remaining is refund-

able. The deduction otherwise allowable for userfees qualifying for the credit is disallowed.


Life Sciences Company ResearchCreditFor taxable years beginning on or after January 1,2009, a new credit may be available for certifiedlife sciences companies pursuant to the Life Sci-ences Tax Incentive Program, to provide qualify-ing companies with a means to obtain a researchcredit for certain expenditures not qualifying forthe existing research credit under c. 63, § 38M.St. 2008, c. 130, §§ 30 and 53, codified at G.L. c.63, § 38W. Under this new provision, the credit isgenerally calculated in the same manner as theresearch credit under section 38M. However, thequalified research expenditures which form thebasis for the calculation in new section 38W differfrom those of section 38M in that they can qualifywhen the activities are performed both inside andoutside of the Commonwealth, to the extent theyrelate to legally mandated clinical trial activities.

The credit can reduce the corporate excise to theminimum excise of $456 and may be carried for-ward for 15 years. Unlike the regular researchcredit, as amended by the new subsection (j) ofsection 38M, described above, the new life sci-ences research credit under M.G.L. Ch. 63, sec.38W is not refundable.


Conservation Land Tax CreditEffective for tax years beginning on or after Janu-ary 1, 2011, a credit is allowed for qualified dona-tions of certified land to a public or private con-servation agency. The credit is equal to 50% ofthe fair market value of the qualified donation. Theamount of the credit that may be claimed by a tax-payer for each qualified donation cannot exceed$75,000. The credit is refundable but not transfer -able. The certification process is conducted by theExecutive Office of Energy and Environmental Af-fairs (EEA). EEA has promulgated a regulation,301 CMR 14.00, entitled Conservation Land TaxCredit, which sets forth criteria for authorizing andcertifying the credit. See also, 830 CMR 62.6.4,entitled Conservation Land Tax Credit, promul-gated by DOR to explain the calculation of the al-lowable credit.

Employer Wellness Program TaxCreditEffective for tax years beginning on or after Janu-ary 1, 2013, a Massachusetts business that em-


ploys 200 or fewer workers may qualify for a taxcredit for up to 25% of the cost of implementing a“certified wellness program” for its employees. Ataxpayer seeking to claim the credit must apply tothe Department of Public Health (DPH) for certifi-cation of its wellness program. DPH will approvea dollar amount of credit for a qualifying taxpayerand issue a certificate number to be provided inconnection with filing a tax return in order toclaim the credit. The amount of the credit thatmay be claimed by a taxpayer cannot exceed$10,000 in any tax year. DPH has promulgated aregulation, 105 CMR 216.000, entitled Massachu-setts Wellness Tax Credit Incentive, which setsforth criteria for authorizing and certifying thecredit. The credit is set to expire on December 31,2017. Note: You must enter the certificate num-ber on Schedule CR. Failure to do so will result inthis credit being disallowed on your tax returnand an adjustment on your reported tax. Enter thenumber from left to right.

Refundable Film CreditSchedule RFC, Refundable Film Credit, is used bymotion picture production companies to elect toclaim a refundable film credit if they have not trans-ferred or carried forward a portion of the film creditfor the production. Transferees of the film credit donot qualify for the refundable film credit.

If an election to refund the film credit for a pro-duction is made, the entire film credit remainingafter reducing the current year tax liability will berefunded at 90%. The production company is notallowed to partially refund and partially transfer orcarryover over any portion of the credit to the nexttax year.

Refundable Dairy CreditA taxpayer who holds a certificate of registrationas a dairy farmer pursuant to M.G.L. Ch. 94, sec.16A is allowed a refundable tax credit based onthe amount of milk produced and sold. The dairyfarmer tax credit as originally enacted was 90%refundable. Under recent legislation, the dairyfarmer tax credit is now 100% refundable.

Refundable Life Science CreditThere are different credits which the Massachu-setts Life Sciences Center, with the approval ofthe Secretary of Administration and Finance, mayauthorize a taxpayer to have refunded in lieu ofcarrying forward such credit to a future year.

A taxpayer may apply for a refund of 90% of theunused Investment Tax Credit granted underM.G.L. Ch. 63, sec. 38U or the additional crediton the same property that may be granted underM.G.L. Ch. 63, sec. 38N if property for which the38U credit is granted is used in a certified project.

A taxpayer may apply for a refund of 90% of theunused FDA User Fee Credit granted under M.G.L.Ch. 63, sec. 38M, including credits carried overfrom prior years. Schedule RLC, Refundable LifeScience Credit, is used by taxpayers to claim therefund.

Refundable Life Science Jobs CreditEffective for tax years beginning on or after Janu-ary 1, 2011, a new tax incentive has been addedto the Life Sciences Tax Incentive Program in theform of a refundable jobs credit. A taxpayer, to theextent authorized by the Life Sciences Tax IncentiveProgram, may be allowed a refundable jobs creditagainst the tax liability imposed under G.L. c. 62,the personal income tax, or G.L. c. 63, the corpo-rate excise. A taxpayer claiming a life sciences re-fundable jobs credit must commit to the creationof a minimum of 50 net new permanent full-timepositions in Massachusetts.

The amount of life sciences jobs credit allowed to ataxpayer will be determined by the MassachusettsLife Sciences Center in consultation with the De-partment of Revenue.

If a life sciences jobs credit claimed by a taxpayerexceeds the tax otherwise due under the personalincome tax or the corporate excise, as applicable,90 percent of the balance of such credit may, tothe extent authorized by the life sciences tax incen-tive program, be refundable to the taxpayer. Excesscredit amounts shall not be carried forward to sub-sequent taxable years.

The refundable jobs credit is subject to all the re-quirements of G.L. c. 23I, including the require-ments set out in TIR 08-23. The total dollar amountof the various life sciences tax incentives, includ-ing the refundable jobs credits, for qualifying lifesciences companies is subject to an annual cap of$25 million.

Refundable Economic DevelopmentIncentive CreditUnder the provisions of the Economic Develop-ment Incentive Program (EDIP) established pur-suant to M.G.L. Ch. 23A, the Economic AssistanceCoordination Council (EACC) may authorize tax-payers participating in certified projects to claimtax credits under M.G.L. Ch. 62 sec. 6(g) andM.G.L. Ch. 63 sec. 38N. Taxpayers authorized bythe EACC to claim tax credits for projects certifiedon or after January 1, 2010 must use Form EDIP,Refundable Economic Development IncentiveProgram Credit, to claim such credits. Taxpayersseeking to claim credits for projects certified priorto January 1, 2010 must use Schedule EOAC. SeeTIR 10-01 for further information.

Community Investment Tax CreditEffective for tax years beginning on or after Janu-ary 1, 2014, a credit is allowed for qualified in-vestments (certain cash contributions made to acommunity development corporation, communitysupport organization, or a community partnershipfund) made on or after January 1, 2014. Thecredit is equal t50% of the total qualified invest-ment made by the taxpayer for the taxable year.No credit is allowed to a taxpayer that makes aqualified investment of less than $1,000. In anyone taxable year, the total amount of the creditthat may be claimed by a taxpayer that makesqualified investments cannot exceed $1,000,000.The credit is refundable, or, alternatively, may becarried forward 5 years. The credit is set to expireDecember 31, 2019. For further guidance see theDepartment’s regulation 830 CMR 62.6M.1, Com-munity Investment Tax Credit and the regulationissued by the Department of Housing and Com-munity Development,760 CMR 68.00, Commu-nity Investment Grant and Tax Credit Program.

Certified Housing DevelopmentCredit Effective for tax years beginning on or after Janu-ary 1, 2011, taxpayers may receive a tax credit ofup to ten percent of the costs of qualified sub-stantial rehabilitation expenditures, as defined inG.L. c. 40V sec. 1, of the market rate units withincertified housing development projects. The creditis administered by the Massachusetts Departmentof Housing and Community Development. See TIR10-14 for further information.

What If aCorporation’sTaxable Year Is LessThan 12 Months?Corporations whose taxable year is less than twelvecalendar months may determine their excise bypro rating calendar months for the non- incomemeasure of the excise only. Schedules should beavailable to explain any prorating computations.

The gross receipts of a corporation must be annu-alized for a short period return for purposes of de-termining whether the corporation’s gross receiptsare $6 million or more. If not, there is no tax onincome on the corporate level.

To compute total receipts for a taxable year con-sisting of less than 12 months, an S corporationmust annualize its total receipts for the taxableyear by multiplying the total taxable receipts forthe short taxable year by 12 and then dividing the


resulting amount by the number of months in theshort taxable year. The resulting difference is en-tered on Schedule S, line 11.

For further information, see Regulation 830 CMR62.17A.1 sec. 11(c).

A corporation may never pay less than the $456minimum excise on a return, and this amount cannever be prorated as Massachusetts law makes noprovision for the proration of the minimum excise.

When AreReturns Due?Corporate excise returns, together with payment infull of any tax due, must be filed on or before the15th day of the third month after the close of thetaxable year, calendar or fiscal.

An extension of time for filing returns will begranted for reasonable cause upon request. In or -der to request an extension, a corporation must fileForm 355-7004 on or before the normal due dateof the return and pay in full the estimated tax due.

Corporations with $100,000 or more in receiptsor sales must submit their extension request, aswell as any accompanying payment, electroni-cally. Also, any corporation making an extensionpayment of $5,000 or more must make the pay-ment using electronic means. See TIR 04-30 forfurther information.

Under certain circumstances, if a payment is notrequired to be submitted with the extension re-quest, the requirement to file the extension may bewaived. For further information, see TIR 06-21.

Note: An extension of time to file is not valid if thecorporation fails to pay at least 50% of the totaltax liability or the minimum tax of $456, which -ever is greater, through estimated payments or withForm 355-7004.

Any tax not paid on or before the due date — with-out regard to the extension — shall be subject toan interest charge.

What if theTaxpayer Is a Fiscalor Short Year Filer?File the 2014 return for calendar year 2014 and fis-cal years that began in 2014 and ended in 2015.For a fiscal year return, fill in the tax year space atthe top of page 1. Short year filers should file usingthe tax form for the calendar year within which theshort year falls. If the short year spans more thanone calendar year, the filer should file use the tax

form for the calendar year in which the short yearbegan. If the current form is not available at thetime the short year filer must file, the filer shouldfollow the rules explained in TIR 11-12.

What is a ProperReturn?A proper return is a return upon which all requiredamounts have been entered in all appropriate lineson all forms. Data sheets, account forms or otherschedules must be available to explain amountsentered on the forms. Referencing lines to enclo-sures in lieu of entering amounts onto the returnis not sufficient.

An exact copy of U.S. Form 1120S, including allapplicable schedules and forms and any other doc -u mentation required to substantiate entries madeon this return, must be made available to the De-partment of Revenue upon request.

Should theCorporationBe MakingEstimatedTax Payments?All corporations which reasonably estimate theircorporate excise to be in excess of $1,000 for thetaxable year are required to make estimated taxpayments to the Commonwealth. Estimated taxesmay be paid in full on or before the 15th day ofthe third month of the corporation’s taxable yearor in four installment payments according to theschedule below.

◗ 40% of the estimated tax due for the year isdue on the 15th day of the 3rd month of the tax-able year;

◗ 25% of the estimated tax due for the year isdue on the 15th day of the 6th month of the tax-able year;

◗ 25% of the estimated tax due for the year isdue on the 15th day of the 9th month of the tax-able year;

◗ 10% of the estimated tax due for the year isdue on the 15th day of the 12th month of the tax-able year.

Corporations with $100,000 or more in receipts orsales must submit their estimated payments elec-tronically. See TIR 04-30 for further information.

Note: New corporations in their first full taxableyear with less than 10 employees have different es-timated payment percentages — 30%, 25%, 25%and 20% respectively.

To avoid a possible underpayment penalty on itstaxes, a corporation should, when making its firstpayment, estimate its tax to be at least equal to theprior year’s tax. If the prior year’s tax was the min-imum tax, the corporation should make a paymentor payments equal to the minimum tax to safe-guard against a possible underpayment penalty.

Note: Any corporation having $1 million or more offederal taxable income in any of its three precedingtaxable years (as defined in IRC sec. 6655(g)) mayonly use its prior year tax liability to calculate its firstquarterly estimated tax payment. Any reduction inthe first installment payment that results fromusing this method must be added to its second in-stallment payment.

For more information on corporate estimated taxes,refer to Regulation 830 CMR 63B.2.2, and M.G.L.Ch. 63B.

RegistrationInformationA tiered structure is a pass-through entity thathas a pass-through entity as a member. The term“pass-through entity” refers to an entity whose in-come, loss, deductions and credits flow through tomembers for Massachusetts tax purposes, and in -cludes partnerships and S corporations. The term“member” includes a partner in a partnership and amember of a limited liability company treated as apartnership in Massachusetts, as well as a share-holder in an S corporation. As between two enti-ties, the pass-through entity that is a member isthe upper-tier entity, and the entity of which it is amember is the lower-tier entity. If the S corpora-tion is a member of another pass-through entity,it should answer “Yes” to this question.

Line 2A corporation is a section 38 manufacturer for anytaxable year if it is engaged in manufacturing dur-ing the taxable year and its manufacturing activityduring the taxable year is substantial. This applieswhether the corporation is a domestic manufactur-ing corporation un der M.G.L. Ch. 63, sec. 38C or aforeign manufacturing corporation under M.G.L.Ch. 63, sec. 42B, and regardless of whether thecor po ra tion is classified as a manufacturing cor-poration under M.G.L. Ch. 58, sec. 2 and Regula-tion 830 CMR 63.58.2.1.

The apportionment factor for corporations en-gaged in substantial manufacturing (section 38man u fac turers) is 100% of sales.

9Line by Line Instructions

A corporation’s manufacturing activity is substan-tial for any taxable year if the corporation meetsany of the following tests:

◗ The corporation derives 25% or more of its receipts for the taxable year from the sale of man -ufactured goods that the corporation manufac-tures; or

◗ The corporation pays 25% or more of its pay-roll for the taxable year to em ployees working inmanufacturing operations and derives 15% ormore of its receipts for the taxable year from thesale of manufactured goods that the corporation manufactures; or

◗ The corporation uses 25% or more of its tangi-ble property in manufacturing during the taxableyear and derives 15% or more of its receipts for thetaxable year from the sale of manufactured goodsthat the corporation manufactures; or

◗ The corporation uses 35% or more of its tan -gible property in manufacturing during the tax-able year.

Effective January 1, 1997, mutual fund service cor -porations are required to attribute their mutualfund sales to Massachusetts based on the domicileof the shareholders in the fund. Effective July 1,1997 mutual fund service corporations are allowedto apportion their net income from mutual fundsales based solely on their sales factor. However, inorder to use the single sales factor apportionmentmethod a mutual fund service corporation mustincrease its workforce in Mass achusetts by 5% ayear for five years based on the 1996 employmentlevel unless adverse economic conditions exist.Tax able net income not derived from mutual fundsales is apportioned according to the statutorythree factor method.

A corporation is a mutual fund service corporationif it derives more than 50% of its gross incomefrom providing, directly or indirectly, management,distribution or administration services to or on be -half of a regulated investment company, and fromtrustees, sponsors and participants of employeebenefit plans which have accounts in a regulatedinvestment company.

The Department has issued further guidance on ap -portionment for mutual fund service corporations;see Regulation 830 CMR 63.38.7.

If a corporation is qualified as a section 38 manu-facturer or is a mutual fund service corporation,check the applicable box and complete ScheduleF, Income Apportionment, accordingly.

The Department has issued further guidance onapportionment; see Regulation 830 CMR 63.38.1.

Line 3An R&D corporation is a business corporationwhose principal business activity in Massachu-

setts is research and development and which (a)derives more than two thirds of its gross receiptsattributable to Massachusetts from that activity or(b) incurs more than two thirds of its expendi-tures in that activity. Research and Developmentcorporations may be eligible for certain tax bene-fits. See 830 CMR 64H.6.4.

A classified manufacturing corporation is a busi-ness corporation engaged in manufacturing inMassachusetts, whose manufacturing activities inMassachusetts are substantial and which hasfiled Form 355Q and had its manufacturing statusapproved by the Commissioner. A corporationmay be a section 38 manufacturer based on itsworldwide manufacturing activities but not be aclassified manufacturer if those manufacturingactivities occur outside of Massachusetts. Classi-fied manufacturing corporations may be eligiblefor certain tax benefits. See 830 CMR 63.58.2.1.

If you are a classified manufacturer, you musthave filed Form 355Q and had your manufacturingstatus approved by the Commissioner.

Line 4If line 4 is “Yes” you are still required to file Form355S and to submit Schedules S and SK-1. If thiscorporation has a taxable year that ends at a differ-ent time than the taxable year for which the com-bined report is being filed, you are also required topay the non-income measure of excise with thisreturn (instead of with Form 355U).

When two or more corporations are required to filea combined report, the taxable members’ appor-tioned shares of the combined income are basedthe combined group’s taxable year. If not all themembers have the same taxable year, the com-bined group’s taxable year is determined under830 CMR 63.32B.2 (11) (b).

Form 355U is used by the combined group to cal-culate and pay the income excise due from thetaxable members of a combined group. Form355U and payment of the income measure of ex-cise is due on 15th day of the 3rd month follow-ing the close of the combined group’s taxableyear. Members of such a group that are subject toa non-income measure of excise under the provi-sions of M.G.L. Ch. 63, sec. 39 (including those Scorporations that are not taxed as financial insti-tutions under M.G.L. Ch. 63 sec. 2D) are requiredto determine and pay the non-income measure ofexcise on the 15th day of the 3rd month followingthe close of their separate taxable year. If a mem-ber’s non-income measure of excise is due on thesame day as the combined report (if the mem-ber’s taxable year ends at the same time as thecombined group’s taxable year), the member willpay such non-income measure with the combinedreport. S corporations that pay the non-incomemeasure of excise with Form 355U file Form 355S,

completing all the questions on page 1, enter ‘0’on all lines of the excise calculation except line 12(which reports the total tax paid with the Form355U). When the non-income measure of excisehas been paid with Form 355U, the dollar amountson Schedules A and B submitted with the Form355S will be blank (do not duplicate the informa-tion submitted with the Form 355U) and Sched-ules S, SK-1 and Schedule F (if the corporation iseligible to apportion) will be completed withoutregard to combined reporting, taking into accountonly the income and activities of this corporationto determine and apportion the distributive sharesof income under M.G.L. c. 62.

If a member of a combined group has a separatetaxable year that ends at a different time than thecombined group’s taxable year, that membermust file a separate return to pay the non-incomeportion of the excise at the close of the member’sseparate taxable year. S corporations will file Form355S indicating on the face of such return thatthey are subject to combined reporting for theirincome measure of excise and exclude from thatseparate return the income that is reported on thegroup’s Form 355U (Schedule E is not required un-less the taxpayer has income from a source otherthan the unitary business). S corporations withseparate taxable years that end at a different timethan the combined group’s taxable year will com-plete Sched ules A and B and any other schedulesrequired to determine the non-income measure ofexcise without regard to combined reporting (e.g.based on their assets and liabilities at the close oftheir separate taxable years). Such corporationscomplete the excise calculation on page 2 of thereturn normally and may take credits against theexcise reported on this separate return and shouldenter the amount of each credit taken on ScheduleCR. S Corporations always complete Schedules Sand SK-1 without regard to combined reporting,taking into account only the income and activitiesof this corporation.

Line 7If the corporation is requesting alternative appor-tionment under M.G.L. Ch. 63, sec. 42, answeryes in line 7 and enclose Form AA-1. The returnand Schedule F must be completed and the taxmust be paid according to the statutory three fac-tor formula. However, alternative treatment maybe requested and a refund will be issued if suchtreat ment is granted by the Commissioner of Rev-enue. For further infor mation on alternative appor-tionment see M.G.L. Ch. 63, sec. 42 or Regulation830 CMR 63.42.1.

Line 8Any corporation undergoing a voluntary dissolu-tion should notify the DOR within 30 days of thevote to dissolve by writing to: Massachusetts De -

10 Line by Line Instructions

part ment of Revenue, Customer Service Bureau,PO Box 7010, Boston, MA 02204.

Line 15If your corporation has undergone a federal auditfor some prior year, you must report any changesto Massachusetts on Form CA-6, Application forAbatement/Amended Return. You must report anyfed eral audit changes within three months afterthe final determination of the correct taxable in-come by the IRS. Otherwise, you will be subject toa penalty. If the federal change results in less taxdue to Massachusetts than was assessed or paid,you may apply for abatement under the federalchange rules within one year of the final federaldetermination. Answering line 14 does not relievethe cor po ra tion from this filing obligation.

Line 16If the corporation is deducting intangible or interestexpenses, answer yes. Complete Schedule ABI,Exceptions to the Add Back of Interest Expense,and/or Schedule ABIE, Exceptions to the Add Backof Intangible Expenses to claim the deduction.

Line 17If the corporation must explain any inconsistentfiling positions made on the return, answer yesand enclose Schedule TDS. See TIR 06-5 for fur-ther information.

Line 18Corporations that are doing business in Massachu -setts but are exempt from the income measure ofexcise pursuant to federal Public Law 86-272claim the exemption here by checking “Yes.”

These corporations remain subject to the non-in-come measure of excise or the minimum excise,whichever is greater. Such corporations are notrequired to submit Schedule E but must completeSchedule F for the purpose of determining theirnon-income measure of excise.

Excise CalculationIn order to complete the excise calculation, all ap-propriate schedules must be filled out first. There-fore, schedule instructions precede the instructionsfor the excise calculation section. Use the wholedollar method.

Schedule ABalance SheetEnter the closing amounts for the taxable year cov-ered by this return. Once the corporation’s balancesheet is completed, it will be easier to completesubsequent schedules.

Line 1aEnter here the book value of all buildings. A portionof the cost attrib utable to buildings under construc -tion and reported on the corporation’s books asconstruction in progress (CIP) is considered realestate for purposes of the property measure of thecorporate excise and must be reported in line 1a.Enter 100% of the corporation’s real estate CIPcosts, less 15% of the current year’s accumulation.

Line 1jThe value of any certified solar/wind units forwhich a deduction is claimed this year should beentered here. Amounts of certified industrial wasteand/or air pollution treatment facilities and certifiedsolar/wind deductions claimed in any prior yearshould be included. In order to be eligible for thisdeduction, property must be certified by the appro -priate state agencies and copies of such certificatesmust be available upon request. See instructionsfor Schedule E, line 24.

Line 1kEnter here the value of all tangible property re-ported on the corporation’s books as CIP. In addi-tion, enter here 15% of the current year’s realestate CIP accumulation. For further information,see Department of Revenue Directive 02-11.

Line 2bEnter here the value of inventory that is exemptfrom the tangible property measure of the excise.An example of exempt inventory is merchandiseof foreign origin imported and immediately placedin a federally bonded warehouse. Merchandise ofdomestic origin is not exempt from the tangibleproperty measure of the excise. A schedule listingthe components of any entry in line 2b must beavailable upon request.

Line 12In order to be a subsidiary, the parent must ownat least 80% or more of the voting stock of a cor-poration in accordance with IRC sec. 1504 or, inthe case of a subsidiary business corporation thatdoes not have voting stock, the book value of itsinvestment in such business corporation must rep-resent an 80% or more ownership interest. Ad-vances should include payments in the nature ofcapital contributions. Do not include loans or otherreceivables.

Line 12aEnter in line 12a the total of capital stock and eq-uity contributions of subsidiary corporations 80%or more owned. If an amount other than “0” isentered in line 12a, Schedule A-1, Investments inSubsidiaries, must be completed.

Line 12bEnter in line 12b the value of capital stock invest-ments with less than 80% ownership and also anyother investment entity such as a partnership.

Line 14If the reserve for bad debt exceeds 2% of accountsreceivable, a complete explanation to enable a re-view and determination of the proper amount al-lowable must be available upon request.

Line 15Enter the amount from Schedule A-2, IntercompanyReceivables, line 29.

Line 17Enter here the value of any assets not included inlines 1 through 16. Examples include, but are notlimited to, goodwill and company patents.

Line 19aEnter the value of mortgages on Massachusetts realestate, motor vehicles, machinery owned by a cor -poration which is not classified as a manufacturingcorporation, and other tangible personal propertylocated in Massachusetts and subject to local tax-ation. Mortgages do not include conditional sales,pledges or other types of security interest.

Line 22Enter the amount from Schedule A-3, Intercom-pany Payables, line 29.

Schedules B, C & DTangible or Intangible Classificationand Calculation of Non-IncomeMeasureSchedules B, C and D are used to calculate thenon-income measure of the Massachusetts cor-porate excise. Schedule B is used to determinewhether a corporation is a tangible or intangibleproperty corporation. Once determined, tangibleproperty corporations must complete Schedule C(and omit Schedule D) and intangible property cor -porations must complete Schedule D (and omitSchedule C). Net book values should be used incompleting all schedules.

Schedule BSchedule B is used to calculate whether a corpo-ration is a tangible or intangible property corpora-tion. Beginning in 2004, taxpayers no longer havethe option of calculating the non-income measureas a domestic or foreign corporation. To reflect thislegislative change, both Schedule B and D havebeen reduced in length. If line 15 is 10% or greater,complete Schedule C. If line 15 is less than 10%,


complete Schedule D. The maximum entry al-lowed on line 15 is 9.999999.

Schedule CIf Schedule B, line 15 is 10% or greater, the corpo-ration must complete Schedule C using net bookvalues to determine the non-income measure of theexcise. Omit Schedule D.

Schedule DSchedule D is used by a corporation to calculateits non-income measure excise on the basis of networth. If line 15 of Schedule B is less than 10%,complete this schedule. Corporations are allowedto deduct the value of investments in, and advancesto, Massachusetts and foreign subsidi aries. To bea subsidiary, the parent must own 80% or more ofthe voting stock of the corporation in accordancewith IRC sec. 1504, or if the subsidiary businesscorporation does not have voting stock, the par-ent must have 80% or more ownership interest inthe subsidiary.

Schedule E-1Dividends DeductionMassachusetts corporate excise law does notallow the dividends received deduction allowedunder the IRC. However, a deduction is allowed for95% of the value of all dividends received except:

◗ dividends from ownership of shares in a corporatetrust engaged in business in the Commonwealth;

◗ dividends resulting from deemed or actual dis-tributions (except actual distributions of previouslytaxed income) from a DISC which is not wholly-owned; or

◗ dividends from any class of stock if the corpora-tion owns less than 15% of the voting stock of thepayer corporation.

Dividends received from a Regulated InvestmentCompany (RIC) or Real Estate Investment Trust(REIT) are not eligible for the dividends receiveddeduction, whether the dividend is paid directlyby the RIC or REIT, or indirectly, as through a sub-sidiary or affiliate of the taxpayer.

The total dividends amount on Schedule E-1, line1 is derived from the amount shown on U.S.Form 1120, Schedule C, line 19, less any divi-dends received directly or indirectly from RICs orREITs as well as any other dividends for whichdeduction is not allowed under Massachusettslaw. The amounts excluded from line 1 are also ex-cluded from line 8. The dividends shown on lines2 through 6 should not be excluded from line 1,as they will be separately subtracted from line 1 indetermining the amount of line 8. For further infor -mation, see TIR 04-10.

A schedule showing payers, amounts and percentof voting stock owned by class of stock must beavailable upon request.

Schedule ETaxable IncomeIf line 17 of Schedule S is less than $6 million,Schedule E is not required.

If line 17 of Schedule S is less than $6 million,Schedule E is not required, irrespective as towhether the corporation is required to file a com-bined report, Form 355U, because it is engaged ina unitary business with a C corporation that isdoing business in Massachusetts.

If line 17 of Schedule S is $6 million or more andthe corporation is required to file Form 355U (see“How Is S Corporation Income Taxed” on page 3),check “Yes” in the registration section, line 5, andcomplete Schedule E only if (a) the taxable year ofthe S corporation does not end on the same day asthe taxable year of the combined group that is fil-ing the combined report and (b) the S corporationhas income from sources other than the unitarybusiness that is taxable in Massachusetts. If bothof the above conditions apply, complete ScheduleE only with respect to the income that is not in-cluded in the combined report. Otherwise enter “0”on line 5 of the excise calculation page.

All other S corporations with receipts of $6 millionor more complete Schedule E as described below.

Mutual fund service corporations eligible to appor-tion their income un der M.G.L. Ch. 63, sec. 38 (m)must complete two separate copies of Sched ule E:(1) for income derived from mutual fund sales; and(2) for non-mutual fund sales income, if any. Tax-able net income from mutual fund sales is grossincome from mutual fund sales less: (1) any de -ductions directly traceable to its mutual fund sales:and (2) a portion of other allowable deductions.Other allowable deductions consist of deductionsnot directly traceable to mutual fund sales or non-mutual fund sales. To determine the deductibleamount of its other allowable deductions a mu tualfund service corporation must multiply the totalamount of its other allowable deductions by afraction, the numerator of which is the mutualfund service corporation’s gross income derivedfrom mutual fund sales for the taxable year andthe denominator of which is the mutual fund serv-ice corporation’s total gross income for the tax-able year. Taxable net income from non-mutualfund sales consists of any taxable net income notderived from mutual fund sales.

If a corporation is not a mutual fund service cor-poration, 100% of sales, profits, and incomeshould be entered in lines 1 through 12. If the

corporation has income from business activitieswhich is taxable both in Massachusetts and anyother state, Schedule F should be completed andthe apportionment percentage entered in line 20.

Line 4Enter U.S. taxable income before deducting net op -erating loss or other special deductions. If the cor -poration is the parent of a DISC, income should bereported with no allocation to the DISC.

Line 5Enter any allowable U.S. Wage Credit used in cal-culating U.S. Form 1120, line 13.

Line 7Enter all interest received on state and municipalobligations not reported in U.S. net income.

Line 8Massachusetts does not allow a deduction forstate, local and foreign income, franchise, exciseor capital stock taxes. Any such taxes which havebeen deducted from U.S. net income should be en-tered in line 8 and added back into income.

Line 9For Massachusetts purposes, for taxable yearsending after Septem ber 10, 2001, depre ciation isto be claimed on all assets, regardless of whenthey are placed in service, using the method usedfor U.S. income tax purposes prior to the enact-ment of sec. 168(k). For more information, see TIR02-11 and TIR 03-25.

Line 10A taxpayer must add back to net income any re-lated member intangible expenses and costs, in-cluding losses incurred in connection with factor-ing or discounting transactions. If you qualify foran exception to the add back requirement, com-plete Schedule ABIE. For further information, seeTIR 03-19.

Line 11A taxpayer must add back to net income any re-lated member interest expenses and costs, in-cluding losses incurred in connection withfactoring or discounting transactions. If you qual-ify for an exception to the add back requirement,com plete Schedule ABI. For further information,see TIR 03-19.

Line 12Massachusetts has decoupled from the AmericanJobs Creation Act of 2004, Public Law 108-357.For corporate excise purposes, the definition ofnet income does not include the new federal pro-duction activity deduction. See TIR 05-5 for fur-ther information.


Line 13Enter any adjustments to income not previously re -ported. For example, enter in this line the amountof depreciation or amortization taken this year incomputing U.S. net income for the following:

◗ certified industrial waste and/or pollution treat-ment facilities of prior years; or

◗ certified solar/wind units of current or prioryears, if said facilities were sold during the year.(See M.G.L. Ch. 63, sec. 38D(d) and sec. 38H(e)for further explanation.)

Capital gains on installment sales of intangibleproperty made prior to 1963 may also be deductedfrom income. These gains fall under the provisionsof prior Massachusetts law when such incomewas not taxable (see M.G.L. Ch. 63, sec. 38(a)(2)).This adjustment should be made in line 8.

Deduct the full U.S. research credit generated pro-vided that the full U.S. research credit was taken. Ifa reduced U.S. research credit was taken, no ad-justments are necessary.

From Massachusetts Schedule RC, Part 1, line 21,add back the full Massachusetts research creditgenerated.

The deduction allowed to a corporation for any ex -pense which qualifies for the Massachusetts Re-search Credit must be reduced by the Mass achu -setts Research Credit determined in the currenttaxable year. In addition, subsection (c) of IRC sec.28 0C, which requires a similar reduction of the de-duction, shall not apply in determining Massachu -setts net income.

Capital loss carryovers are not allowed under Mass -achusetts law. Any loss claimed on the U.S. returnmust be added back here.

If the corporation has income not subject to ap-portionment, the amount should be deducted hereand entered on Schedule E, line 22.

If the corporation has qualified taxable income andpassive income, the amount should be deductedhere and entered on the Excise Calculation Sched-ule, line 3.

Line 15Enter the total cost of renovating an abandonedbuilding in an Economic Opportunity Area. Multi-ply this amount by 10% and enter here.

Line 16Refer to Schedule E-1 for the allowable deductionsfor dividends. Dividends from a Massachusettscorporate trust, a non-wholly-owned DISC or acorporation of which less than 15% of the votingstock is owned are not deductible. Also, direct orindirect dividends received from a RIC or REITare not deductible.

Line 20If the corporation conducts business activities inanother state sufficient to give that state the juris-diction to tax the corporation, Schedule F shouldbe completed in order to determine the apportion -ment percentage. If all business is conducted inMassachusetts, 100% (1.00) should be entered inline 20.

Line 24A deduction is allowed for expenditures paid or in-curred during the taxable year for the installation ofany solar or wind powered climate control or waterheating unit. Ancillary units do not qualify.

In order to be eligible for this deduction, the prop -erty must be certified by the Office of FacilitiesMan agement. A copy of such certification must beavailable along with a schedule itemizing the:

◗ cost;

◗ allowable U.S. depreciation;

◗ date of installation; and

◗ place of installation.

If these amounts are prorated, the computationshould be explained.

If eligible units do not continue in qualified use forten years, the deductions previously allowed mustbe added back to taxable income. The amountshould be entered in Schedule E, line 13.

Note: The special deduction for the constructionof certified industrial waste and/or air pollutiontreatment facilities does not apply to expenditurespaid or incurred on or after January 1, 1980.

Line 26Enter the amount of the corporation's loss carry-over deduction from Schedule NOL, line 5.

Line 27Subtract the amount on line 26 from the amounton line 25. Enter this amount in the excise calcula-tion section, line 5.

Line 28Enter the amount of the total net operating lossavailable for carryover to future years. This figureis taken from Schedule NOL, line 8.

If Schedule NOL is not filed and Schedule E, line23 is a loss, enter the amount from line 23 in line28 as a positive number.

Schedule CR. OtherCorporate CreditsSchedule CR is used to calculate the total of anycredits being claimed for use in the current tax year.

Corporations which are members of a combinedgroup required to file Form 355U that must payan excise with this return (corporations with a fis-cal year ending at a different time than the taxableyear for which the combined report is being filed)should report on Schedule CR only the type andamount of credit(s) being claimed against the ex-cise shown on this return.

Schedule FIncome ApportionmentMutual fund service corporations should completea Schedule F for income from mutual fund sales ifthey made mutual fund sales to RIC’s with share-holders domiciled outside of Massachusetts.Sched ule F should be completed by all other corpo -rations (including mutual fund service corporationsreporting non-mutual fund sales) which have in-come from business activities which is taxable bothin Mass achusetts and in any other state. For pur-poses of this requirement, “taxable” has the mean -ing set forth in the Apportionment of IncomeRegulation, 830 CMR 63.38.1 sec. 5(b). This stan -dard is not satisfied merely because the taxpayeris incorporated in such a state or files a return insuch a state that relates to capital stock tax orfranchise tax for the privilege of doing business.

If the corporation is requesting alternate appor-tionment under M.G.L. Ch 63, sec. 42, answeryes in line 7 of Form 355S and enclose Form AA-1.You must still complete and file Schedule F. A re-fund will be issued if alternative apportionment isgranted by the Commissioner. For further infor-mation on alter native apportionment see theMass achusetts Alternate Apportionment Regula-tion, 830 CMR 63.42.1.

For further information about corporations thathold partnership inter ests and the appropriatemethod to use to apportion partnership income,see Regulation 830 CMR 63.38.1 sec. 4(d) and 12.

Corporations engaged in substantial manufactur-ing (section 38 manufacturers) are required to ap-portion their net income based on sales factor only.

Corporations other than section 38 manufacturersor mutual fund service corporations are required toapportion their net income as follows: sales factorequals 50%, property factor equals 25%, payrollfactor equals 25%.


To determine if a corporation qualifies as a section38 manufacturer or mutual fund service corpora-tion, see instructions for the registration section:line 2 of Form 355 or 355S.

If a corporation is a section 38 manufacturer ormutual fund service corporation, fill in the applica -ble oval. If a corporation is not a section 38 manu-facturer or a mutual fund service corporation, fill inthe oval for “Other.”

Mutual fund service corporations must completea Schedule F based on mutual fund sales and aseparate Schedule F based on non- mutual fundsales, if any. For further information on apportion-ment for mutual fund service corporations, seeRegulation 830 CMR 63.38.7.

Corporations must complete all lines, regardlessof apportionment method used. Make certain thatcomplete information is entered for all apportion-ment factors. A return which is incomplete will beconsidered insufficient.

Certain amounts are excluded from the calculationof the apportionment factors used to determinetaxable income (both the worldwide and Mass-achusetts figures), among them any factors attrib-utable to items of gross income that are excludedfrom the federal gross income of a taxpayer, in ac-cordance with 830 CMR 63.38.1(9) (e), (see alsoTIR 10-16), and any factors attributable to incomederived from unrelated business activities, in ac-cordance with 830 CMR 63:38 and 1(3)(d). In ad-dition, certain amounts are subject to the rules ofexclusion from the sales factor, as set forth in 830CMR 63:38.1(9) (d)1.f.

Line Instructions1. Property FactorLine 1aFor tax purposes, average value is based on orig-inal cost and is determined by averaging the prop-erty values at the beginning and end of the taxableyear. If substantial changes occur during the tax-able year, the Commissioner may require monthlyaveraging to properly reflect the average value ofthe property. For purposes of the property factor, ataxpayer may elect to use any reasonable methodfor attributing its mobile property to Massachu-setts. The election is made by filing a return thatemploys the chosen method for the first tax yearending on or after August 11, 1995, in which thetaxpayer owns or rents mobile property and appor-tions income to Massachusetts. The taxpayer mustmake available a statement describing the methodchosen and must use the same method consis-tently from year to year. For further information, in-cluding safe harbor methods, see Regulation 830CMR 63.38.1 sec. 7(d).

Construction in progress is generally excludedfrom the property factor; see Regulation 830 CMR63.38.1 sec. 7(a), (b). For the property factor, in-ventory in transit is deemed to be at its destina-tion; see Regulation 830 CMR 63.38.1 sec. 7(c).

Line 1bProperty rented by the corporation is valued at eighttimes the annual net rental rate paid less any sub-rentals received.

2. Payroll FactorLine 2aEnter the total amount of wages, salaries, commis-sions, or any other compensation paid to employ-ees. An employee’s compen sation is allocated toMassachusetts, if any of the following apply:

◗ the employee’s service is performed withinMassachusetts;

◗ the employee’s service is performed both inMassachusetts and in other state(s), but the non-Massachusetts service is secondary to the Mass-achusetts service;

◗ part of the employee’s service is performed inMassachusetts, and the service is controlled froma location in Massachusetts;

◗ part of the employee’s service is performed inMassachusetts, and the location of the service is notin a state in which some part of the service is per-formed, but the employee lives in Massachusetts.

The total amount paid for compensation is com-puted on the cash basis, as reported for unemploy -ment purposes. A taxpayer that uses the accrualmethod of accounting in computing its taxablenet income may elect to use the accrual method indetermining the total amount of compensation paidin Massachusetts during the taxable year. For fur-ther information on how to elect the accrual methodsee Regulation 830 CMR 63.38.1 sec. 8(a).

3. Sales FactorFor sales factors, enter the gross receipts of thecor poration with the exception of those receiptsfrom interest, dividends and the sale or other dis-position of securities or the sale of business “goodwill” or similar intangible value. Any receipts result-ing in allocable income must be excluded. For fur-ther information, see Regulation 830 CMR 63.38.1sec. (9)(a).

Also, in the case of the sale, exchange or other dis -position of a capital asset used in the taxpayer’strade or business, enter the gain from the transac-tion and not the gross receipts. For further informa -tion, see Regulation 830 CMR 63.38.1 sec. (9)(b).

Line 3aSales of tangible personal property are assignableto Mass achusetts if the property is delivered orshipped to any buyer, including the U.S. govern-ment, in Massachusetts.

Line 3bSales of tangible personal property are assignableto Mass achusetts if the selling corporation is nottaxable in the state of the buyer and the property isnot sold by an agent or agencies chiefly situatedat, connected with, or sent out from premises forthe transaction of busi ness owned or rented by thecorporation outside Massachusetts. A buyer forthis item includes the U.S. government.

Sales of tangible personal property are not assign -able to Massachusetts if:

◗ the property is shipped or delivered to a buyerin a foreign country; or

◗ the property is sold to any branch or instrumen-tality of the U.S. gov ernment for resale to a foreigngovernment.

Line 3cSales of services are assigned to Massachusetts ifand to the extent the service is delivered to a loca-tion in Massachusetts. See G.L. c. 63, sec. 38(f)and 830 CMR 63.38.1(9)(d).

Any amounts required to be excluded from thesales factor calculation should be accounted for bymaking the necessary exclusion from the Mass-achusetts and worldwide figures in line 3c. For ex-ample, in the case of a service or license ofintangible property where the taxpayer is not tax-able in the state to which the sale is to be as-signed, the sale amount should be excluded fromthese figures. See 830 CMR 63.38.1(9)(d) 1.

Mutual fund sales are assigned to Massachusettsas follows:

◗ mutual fund sales are determined separately foreach RIC from which the mutual fund service cor-poration receives fees for mutual fund services;

◗ the mutual fund sales for each RIC are multi-plied by a fraction, the numerator of which is theaverage number of shares owned by the RIC’sshareholders domiciled in Massachusetts at thebeginning and end of the RIC’s taxable year thatends within the mutual fund service corporation’staxable year, and the denominator of which is theaverage number of shares owned by all of theRIC’s shareholders for the same period; and

◗ the resulting amounts are totaled for all RICs.

For taxable years beginning on or after January 1,2014 any corporation that has mutual fund sales,including those that do not qualify as mutual fundservice corporations under M.G.L. c. 63, sec.


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38(m), is required to assign those sales accordingto the rules that apply to mutual fund service cor-porations. The term “mutual fund sales” is definedin M.G.L. c. 63, sec. 38(m)(1) and refers to certainservices provided to a RIC, including manage-ment, distribution, and administrative services.

Line 3dRents from property located or used in Massachu-setts are assigned to Massachusetts. Income de-rived from license or lease of intangible property isassigned to the state in accordance with the rulesat 830 CMR 63.38.1(9)(d) 5.

If using a three-factor apportionment formula, andone or more factors are inapplicable the followingshall apply:

◗ In cases where only two of the three apportion-ment factors (property, payroll, sales) are applica-ble, the taxable net income is apportioned by afraction, the numerator of which is the remainingtwo factors with their respective weights and thedenominator of which is the number of times thatsuch factors are used in the numerator.

◗ In cases where only one of the three apportion-ment factors (property, payroll, sales) is applica-ble, the taxable net income is apportioned solelyby that factor with its respective weight, and thedenominator is the number of times the factor isused in the numerator.

Note: An apportionment factor should not neces-sarily be considered inapplicable if its Massachu-setts total (lines 1c, 2a or 3f) is zero.

If you are claiming an exception on Schedule ABI orABIE, do the following to see if a factor applies.Complete Schedule E through line 19 without refer-ence to the add back exception but less the amountof deductible and intangible expense stated in line1 of the respective Schedule ABI or ABIE.

If any of the apportionment totals for “Worldwide”(lines 1c, 2a or 3f) are less than 3.33% of Sched-ule E, line 19, do not include that factor in yourMassachusetts apportionment percentage.

Schedule HInvestment Tax Credit andCarryoversPart 1. Calculation of Current-YearInvestment Tax Credit GeneratedLines 1a through 1dOnly R&D corporations should complete theselines. All others leave blank. R&D corporationsare eligible for the credit only if two thirds of theirMassachusetts receipts are derived from the pro-vision of research and development services orfrom royalties or fees from licensing patents,

know-how or other technology developed from re -search and development. See Regulation 830CMR 64H.6.4 for further information.

Lines 2a through 2hEnter the total cost basis of all qualified deprecia-ble property placed in service during the tax yearby Schedule A category. Qualifying property mustbe tangible property, including buildings but ex-cluding motor vehicles and other property taxableunder Ch. 60A, used by the corporation in Mass-achusetts, situated in the Commonwealth on thelast day of the taxable year and depreciable underSection 167 of the IRC with a useful life of fouryears or more. A corporation may not claim thecredit for property it leases to others as a lessor.

Line 4If any of the property included in lines 2a through2h is eligible for a U.S. Tax Credit, the total amountof the U.S. credit taken with respect to the qualify-ing property must be entered here and applied asa reduction to the basis in calculating the Mass-achusetts credit.

Line 6Enter the tentative tax credit. This is 3% of the costafter any basis reduction.

Line 7If qualifying property is placed in service and dis-posed of or otherwise ceases to be in qualifiedservice before the end of the same tax year, theamount of credits available is reduced. Multiply thecredit otherwise available (cost as reduced by U.S.tax credits times 3%) by a fraction, the numeratorof which is the number of months remaining inthe useful life of the asset when it is disposed ofor otherwise ceases to qualify and denominator ofwhich is the total number of months in the assets’useful life. For example, an item that is depreciatedover a seven-year period for U.S. tax purposes hasa useful life of 84 months.

Line 8Subtract the amount of the credit reduction in line7 from the tentative credit in line 6.

Part 2. Recapture of Unused CreditIf property is disposed of or ceases to be in qual-ified use prior to the end of its useful life, thediffer ence between the credit taken and the creditallowed for actual use must be added back in theexcise calculation in the year the property is dis-posed of. Recapture tax is not due if the creditwith respect to the property disposed of werenever used to offset excise, whether or not thecredits are still available for use. Recapture doesnot apply if the property has been in qualified usefor more than 12 years.

For each item disposed of or otherwise ceasing toqualify prior to the end of its useful life, calculate thereduction in the amount of the original credit. Thisis the credit originally allowed times a fraction,the numerator of which is the number of monthsremaining in the useful life of the asset when it isdisposed of and the denominator of which is thenumber of months in the asset’s useful life, as de-termined for U.S. tax depreciation purposes.

Next determine whether or not the credits allowedbut not earned have been used to reduce excise.The potential recapture tax for each asset is thenoffset, on a dollar for dollar basis, by credits of thesame type generated in the same tax period thathave never been used to reduce excise. Includeboth credits carried over from the prior year andcredits which expired unused.

ExampleManufacturing Corporation begins business in year1 and generates $30,000 in ITC. In year 2, Manu-facturing Corporation generates $10,000 in ITC. Itgenerates no credits in years 3 or 4. All property isacquired in the first month of the year and has auseful life of 10 years. In each year, Manufactur-ing’s excise before credits is $7,000 and it uses$3,500 of ITC (a total of $14,000 in credits used)all of which is from the earliest available credit (theyear 1 amount). Under the provisions of M.G.L.Ch. 63, sec. 32C, a further $3,500 in ITC becomesavailable for carryforward to any future period ineach of the 4 tax years (a total of $14,000, all ofwhich is also from the earliest available credit,which is the year 1 amount). At the end of year 4,the remainder of the year 1 credit ($30,000 less$14,000 used less $14,000 converted equals$2,000) expires unused.

At the beginning of January in year 5, Manufac-turing sells all of its assets, triggering recapture.

The potential recapture on the year 1 assets is$30,000 × 72 ÷ 120 = $18,000. This is partiallyoffset by the $2,000 of the expired credits. A fur-ther $14,000 is offset by reducing the unlimitedcarryforward generated in year 1 that is still avail-able and unused. There is a net recapture tax of$2,000 related to the year 1 assets.

The potential recapture on the year 2 assets is$10,000 × 84 ÷ 120 = $7,000. This is offset by re-ducing the carryover available from year 2 by thesame amount. There is no recapture tax related tothe year 2 assets. Manufacturing still has $3,000of year 2 credits available for use. They will expireat the end of the current year.


Completing the ScheduleEnter $25,000 in line 1 (the total potential ITC re-capture from all years).

Enter $2,000 in line 2a (the amount of credits ex-pired unused).

Enter $7,000 in line 2b (the amount of the reduc-tion in year 2 credits).

Enter $14,000 in line 2e (the amount of the re-duction in the unlimited carryover).

Enter $2,000 in line 3 (the total recapture taxadded to excise this year).

Part 3. Calculation of AvailableCreditsEnter the amount of each credit available for usein the current year based on the year generated. Ifcarryover credits were offset against potential re-captures in Part 2, the amount available shouldreflect the reduction by those offsets.

Lines 1 through 5Enter in column a the amount of credit availablefor use in the current year. Credits available whichare subject to the 3-year carryover limitation areentered on the line appropriate for the tax year inwhich the credit was generated. Credits no longersubject to the 3-year time limit are shown on line5. If carryover credits were offset against poten-tial recaptures in Part 2, the amount actually avail-able should reflect the reduction by those offsets.

Enter in, column b, the amount of credits origi-nating in each tax year being used in the currentyear. M.G.L. Ch. 63, sec. 32C limits the amount ofthese credits that may be used in any year by pro-hibiting a taxpayer from taking credits that will re-duce the tax below 50% of the excise due beforecredits. If the taxpayer has available and will betaking other credits that are also subject to thesection 32C limitation (e.g. the Brownfields Creditunder sec 38Q) the maximum amount of invest-ment tax credit allowed is reduced by the amountof such other credits taken. Taxpayers may chosewhich credits to use but the total of all such cred-its subject to the section 32C limitation may notexceed 50% of the excise before credits. Creditsmay also not reduce a corporation’s tax below the$456 minimum excise.

Enter in column c, the amount of credits originat-ing in each tax year converted to unlimited carry-over status. Credits that could have been usedexcept for the 50% limitation in M.G.L. Ch. 63,sec 32C may be used in any subsequent year,without regard to the normal 3 year time limitprovided in Ch.63, sec. 31A. The taxpayer maychoose which credits to treat as converted to un-limited status, but the total of all such credits des-ignated for unlimited carryover may not exceed50% of the current year excise before credits.

Enter in lines 2 through 4, column d the amountof credits originating in each tax year and stillsubject to the 3-year time limit which are carriedover to future years. Note that any credits on line1(a) not used or converted expire at the end ofthe current year.

Part 4. Reconciliation ofMassachusetts Tangible PropertyCorporations claiming an ITC in Part 1 or claimingan ITC carryforward in Part 3, whether or not usedin the current year, must complete Part 4 basedon the book value of their capital assets located in Massachusetts.

Schedule SDistributive IncomeNote: In the following Schedule S and SK-1 instruc-tions only certain items are addressed in detail.Lines without specific instructions are consideredto be self-explanatory.

Line 1Enter the total amount of gross receipts or salesfrom U.S. Form 1120S, line 1c. Returns and al-lowances are subtracted in reaching this amount.

Line 11Enter the total amount of other income not in-cluded in lines 1 through 10. Include income fromU.S. Form 1120S, line 5, and U.S. Form 1120S,Sched ule K, lines 10. If an S corporation is a part-ner in a partnership, include the amount of its dis-tributive share of the partnership’s total receiptsnot included in lines 1 through 10. Include all tax-exempt income. Also enter any other items in-cluded in an entity’s gross income under IRC sec.61 and not included in lines 1 through 10.

Also include in line 11 any difference that resultsfrom the annualization of income for a short pe-riod return.

Line 13Enter only those receipts from intercompany trans -actions that are included in lines 1 through 11. Donot include receipts from related entities includedin 15 below.

Line 15Enter here the aggregated total receipts less re-ceipts from intercompany transactions for all enti-ties other than the S corporation that sharecommon ownership and are engaged in a unitarybusiness with the S corporation according toRegulation 830 CMR 62.17A.1 (11)(e) and (f).Enclose a supporting schedule for each entityclearly stating all items of total receipts and inter-company transactions.

Line 18Enter the amount of ordinary income or loss fromU.S. 1120S, line 21. Do not include interest, divi-dends, and other portfolio income included in line21. Enter such income on lines 23 through 29.

Line 19If reporting other income or loss from U.S. Form1120S, Schedule K, line 10, enclose a statementand explain.

Line 20Enter total foreign, state or local income, franchise,excise or capital stock taxes deducted from U.S.income. These taxes are deductible for U.S. taxpurposes, but are not deductible in Massachusetts.

Line 22Enter in line 22 any income or loss included inlines 18 and/or 19 which is granted treatment bythe U.S. government or is classified as a capitalgain or loss for Massachusetts purposes.

For Massachusetts purposes capital gain or lossis the gain or loss from the sale or exchange of acapital asset. A capital asset is: (1) an asset whichis a capital asset for U.S. income tax purposes or(2) property that is used in a trade or businesswithin the meaning of IRC section 1231(b) withoutregard to the holding period defined in said sec-tion 1231(b).

Line 24Report and describe any other adjustments toMassachusetts income and deductions not re-ported elsewhere on Schedule S.

For Massachusetts tax purposes, an S corporationis allowed only those expense deductions that anindividually owned business is allowed. Deductionsthat are itemized by an individual on Schedule A ofU.S. Form 1040, are not allowed. The deductionsfor a net operating loss carryover or carryback areneither allowed to the S corporation nor to an in-dividual under Massachusetts income tax law.

If an S corporation is taxable at the federal level,and thus at the state level, on passive investmentincome under IRC sec. 1375, then such incomepassed through to the shareholder is reduced bythe item’s portion of the tax paid at the U.S. andstate level. Reduce the S corporation’s Massachu -setts ordinary income by the amount of the federaland state tax paid by the S corporation. Enclosethe computation of the tax shown on U.S. Form1120S, line 22(b).

Also report the cost of renovating a qualifyingabandoned building. Enclose a statement detailingthe location and cost of renovating the qualifyingabandoned building.


Line 28Add U.S. Form 1120S, Schedule K, lines 4, 5aand 6 and enter the total in line 28.

Line 29Enter the total amount of interest on U.S. debtobligations reported in line 28 which is taxableby the U.S. government, but is tax-exempt in Massachusetts.

Line 30Enter the total amount of interest from Massachu-setts banks included in line 28. Report any inter-est from Massachusetts savings accounts, savingshare accounts and NOW accounts. Also reportany interest from term and time deposits. Enclosea statement listing bank sources and amounts.

Note: This amount should not include any 5.2%interest from Massachusetts banks derived in theordinary course of the trade or business activity ofthe S corporation, and properly reported in line 18.

Line 31Enter the total amount of interest (other than fromMassachusetts banks) and dividend income in-cluded in line 28. Do not include interest on U.S.debt obligations that is taxable by the U.S. govern -ment, but is tax-exempt in Massachusetts. Enclosea statement listing sources and amounts.

Line 32Enter the total amount of the S corporation’s non-Massachusetts state and municipal bond interest.This interest is taxable in Massachusetts but nottaxed by the U.S. government and thus not re-ported on U.S. Form 1120S, Schedule K, line 4.

Line 33Enter the total amount of royalty income includedin line 28.

Note: This amount should not include any royaltyincome derived in the ordinary course of the tradeor business activity of the S corporation and prop-erly reported in line 18.

Line 34Enter the total amount of other income included inline 28, less the amounts of other income includedin lines 29 through 33.

Capital Gains and LossesIf the S corporation had any income or loss re-ported in U.S. Form 1120S, Schedule K, line 10that is granted capital gains treatment by the U.S.government, include that amount in lines 35through 42, as applicable.

Line 38Enter the amount of any loss on the sale exchangeor involuntary conversion of property used in a

trade or business and held for one year or less(from U.S. Form 4797).

Line 41Enter in line 41 any long-term capital gain or lossthat is not included in lines 39 and/or 40 that isgranted capital gains treatment by the U.S. gov-ernment or is classified as a capital gain or loss forMassachusetts purposes. For Massachusetts pur-poses capital gain or loss is the gain or loss fromthe sale or exchange of a capital asset. A capitalasset is: (1) an asset which is capital asset for U.S.income tax purposes or (2) property that is usedin a trade or business within the meaning of IRCsec. 1231(b) without regard to the holding perioddefined in said section 1231(b).

Line 42Enter the amount of any gain from collectibles heldfor more than one year.

Collectibles are defined as any capital asset that is acollectible within the meaning of IRC sec. 408(m),as amended and in effect for the taxable year, in-cluding works of art, rugs, antiques, metals,gems, stamps, alcoholic beverages, certain coins,and any other items treated as collectibles for fed-eral tax purposes.

Line 43Report any adjustments to Massachusetts capitalgain and losses. Enclose a complete statement ex -plaining any such adjustments.

If an S corporation is taxable at the federal level,and thus the state level, on certain capital gainsunder IRC sec. 1374, then the amount of the cap-ital gains passed through to the shareholder is re -duced by the tax paid at the federal and statelevel. Reduce the S corporation’s capital gain bythe amount of federal and state tax paid by the Scorporation and enclose the computation of thetax shown on U.S. Form 1120S, line 22(b).

Resident and NonresidentReconciliationLines 44 through 47 should be completed only if allthree of the following conditions are met: (a) thereis one or more nonresident shareholders; (b) thereis any income derived from business activities orownership of any interest in real or tangible prop-erty in another state; (c) such business activitiesprovide the other state the jurisdiction to levy anyincome or franchise tax.

When completing line 45 exclude any income fromunrelated business activities prior to apportion-ment, see Regulation 830 CMR 63.38.1, sections(3) and (4). Enclose a statement and explain anyadjustments.

Form 355S, Schedule F should be completed be-fore completing lines 44 through 47.

Schedule SK-1On the Schedule SK-1 for each shareholder, the Scorporation should indicate the entity type of theshareholder. The S corporation should obtain thisinformation from the shareholder. The S corpora-tion should select “Bank” if the shareholder is anIRA or a Roth IRA and the S corporation is a bankor depository institution holding company. The Scorporation should select “Exempt organization” ifthe shareholder is exempt from federal income taxunder IRC sec. 501.

S corporations that have indicated on the SK-1that they are reporting transactions under M.G.L.ch. 62C, 32A, identified as IRC section 453A or453(l)(2)(B) transactions, must separately com-municate information to the partner/shareholderthat will enable the shareholder to calculate theaddition to tax.

For 453A transactions, the shareholder must in-form the shareholder of the shareholder’s shareof the aggregate face amount of installment salestransactions arising in and outstanding as of theclose of the taxable year, and any other informa-tion the shareholder may need to calculate the ad-dition to tax. The $150,000/$5 million thresholdsapply at the level of the individual shareholder.The S corporation must therefore communicateto the shareholder all 453A installment sale trans-actions exceeding $150,000. The “applicable per-centage” is the ratio of the aggregate face amountof installment sale obligations arising in and out-standing as of the close of the taxable year in ex-cess of $5 million to the aggregate face amountof such obligations arising in and outstanding atthe close of the taxable year. The “applicable per-centage” will be determined by each shareholder.

For 453(l)(2)(B) transactions, the S corporationmust inform the shareholder of the shareholder’sshare of gain on installment transactions, the dateof the transactions, and any other information theshareholder may need to calculate the addition totax.

Shareholder’s MassachusettsInformationThe shareholder’s distributive share of each itemof income, loss, deduction, or credit is determinedby the shareholder’s percentage of ownership ofstock in the S corporation computed on a dailybasis during the taxable year.

Note: If the shareholder is a single member of aLimited Liability Company (LLC), the taxpayer iden-tification number is the shareholder’s Social Secu-rity number, not the Federal Identification numberof the LLC.


◗ For a nonresident shareholder eligible to appor-tion, enter in lines 1 through 21 the amount of theshareholder’s share of each applicable distributiveshare item multiplied by the apportionment per-centage in Form 355S, Schedule F, line 5.

Note: For line 8, enter the amount of the non -resident shareholder’s distributive share withoutapportionment.

◗ For all other shareholders, enter in lines 1through 21 the amount of the shareholder’s shareof each applicable distributive share item.

◗ For lines 17 through 20 the S corporation mayprovide each shareholder with a written break-down of long-term capital gains and losses by theapplicable holding period.

Line 1Enter the amount of the shareholder’s share of theS corporation’s Massachusetts ordinary income orloss from Schedule S, line 25. For a nonresidenteligible to apportion, enter the amount of theshareholder’s share of the S corporation’s Mass-achusetts ordinary income or loss multiplied by theapportionment percentage in Schedule F, line 5.

Line 2Report and describe in line 2 any other expensethat is deductible from income taxed at 5.2% andproperly reportable on Massachusetts Form 1 or1-NR/PY, Schedule E, Part II, or Form 2 and is notreported elsewhere on Schedule SK-1. Examplesof such deductions include oil and gas depletionand the expense deduction for recovery property,IRC sec. 179. An estate or trust may not elect toexpense recovery property.

Line 3Combine the amounts in lines 1 and 2. The resultin line 3 includes each shareholder’s share of the Scorporation’s Massachusetts ordinary income.

The correct Massachusetts amount of the share-holder’s share of ordinary income may differ fromthe comparable U.S. total reported on the share-holder’s Form 1 or 1-NR/PY, Schedule E, Part II;or Form 2. Each shareholder should make ad-justments in Form 1 or 1-NR/PY, Schedule E, PartII if applicable; or Form 2, to reflect the correctMassachusetts amount. Each shareholder shouldenclose a state ment with the shareholder’s Mass-achusetts tax return and explain the adjustments.

The S corporation should also provide each share -holder with the amount of any costs of renovatinga qualifying abandoned building. Each shareholdershould use this amount to complete Form 1 or1-NR/PY, Schedule E, Part II; or Form 2. Enclose astatement detailing the location and cost of reno-vating the qualifying abandoned building.

The S corporation should provide each shareholderwith the amount of the shareholder’s share of any5.2% interest from Massachusetts banks and in-terest (other than from Massachusetts banks) anddividend income included in line 3. Each share-holder should use these amounts to completeForm 1 or 1-NR/PY, Schedule E, Part II.

Line 4Enter the shareholder’s share of any tax due fromthe S corporation to any other state, territory orpossession of the United States, or Canada or anyof its provinces on income taxable to the share-holder in Massachusetts and otherwise allowableas a credit to individuals.

This credit is available only to resident sharehold-ers and may be taken by using Form 1, Schedule Z,or Form 1NR/PY, Schedule Z or if applicable, onForm 2. Where the credit is available, the S corpo-ration must also provide each resident shareholderwith separately stated totals of 5.2% interest (otherthan from Massachusetts banks), dividends andcertain capital gains taxed at 12% income andlong-term capital gain taxed by other jurisdictionsto enable each shareholder to calculate the amountof the credit. The S corporation should provideeach shareholder with the names of each applica-ble jurisdiction and the amount taxed.

Enter the shareholder’s proportionate share of anycredit being claimed.

Line 5Enter the shareholder’s share of the S corporation’snet rental income or loss from real estate activitiesfrom Schedule S, line 26.

The correct Massachusetts amount of the share-holder’s net income or loss from rental real estateactivities may differ from the comparable U.S. totalreported on the shareholder’s Form 1, or 1-NR/PY,Schedule E, Part II; or Form 2, Schedule E. Eachshareholder should make adjustments in Form 1,or 1-NR/PY, Schedule E, Part II; or Form 2,Schedule E, to reflect the correct Massachusettsamount. Each shareholder should enclose astatement with the shareholder’s Massachusettstax return and explain.

Line 6Enter the shareholder’s share of the S corporation’snet rental income or loss from other activities fromSchedule S, line 27.

The correct Massachusetts amount of the share-holder’s share of net rental income or loss fromother activities may differ from the comparableU.S. total reported on the shareholder’s Form 1 or1-NR/PY, Schedule E, Part II; or Form 2. Eachshareholder should make adjustments in Form 1 or1-NR/PY, Schedule E, Part II; or Form 2, to reflectthe correct Massachusetts amount. Each share-

holder should enclose a state ment with the share-holder’s Massachusetts tax re turn and explain.

Line 7Enter the shareholder’s share of the S corporation’sinterest on U.S. debt obligations from Schedule S,line 29. For a nonresident shareholder eligible toap portion, enter the shareholder’s share withoutapportionment. This income is taxable by the U.S.government, but tax-exempt in Massachusetts.

Each shareholder should include the line 7 totalin Form 1 or 1-NR/PY, Schedule B; or Form 2,Schedule B.

Line 8Enter the shareholder’s share of the S corporation’s5.2% interest from Massachusetts banks fromSchedule S, line 30. For a nonresident eligible toapportion, enter the shareholder’s share of the Scorporation’s 5.2% interest from Massachusettsbanks multiplied by the apportionment percentagein Schedule F, line 5.

Each shareholder should include the line 8 total inForm 1, line 5, or 1-NR/PY, line 7; or Form 2.

Each nonresident shareholder whose income isap portioned should receive from the S corpora-tion the amount of the shareholder’s pre-appor-tionment share of 5.2% interest from Massachu-setts banks. Each nonresident individual whoseincome is apportioned should include this amountin Form 1-NR/PY, Schedule B. This amountshould be used instead of any amount from Form1-NR/PY, line 7 because the shareholder’s full dis-tributive share of such income is included in theU.S. amount reported in Form 1-NR/PY, ScheduleB, line 1. Each nonresident trust or estate whoseincome is apportioned should include its pre-ap-portionment share of 5.2% interest from Mass-achusetts banks in Form 2, Schedule B, insteadof any amount from Form 2.

Line 9Enter the shareholder’s share of the S corpora-tion’s interest (other than from Massachusettsbanks) and dividend income from Schedule S, line31. For a nonresident shareholder eligible to ap-portion, enter the shareholder’s distributive shareof the (other than from Massachusetts banks) in-terest and dividend income from Schedule S, line26, multiplied by the apportionment percentage inSchedule F, line 5.

The correct Massachusetts amount of the share-holder’s share of (other than from Massachusettsbanks) interest and dividend income may differfrom the comparable U.S. total reported on theshareholder’s Form 1, 1-NR/PY, or 2, Schedule B,lines 1 and 2. Each shareholder should make ad-justments to reflect the correct Massachusettsamount in Form 1 and 1-NR/PY, Schedule B, line 6;


or Form 2, Schedule B. Each shareholder shouldenclose a statement to the shareholder’s Mass-achusetts tax return and explain any adjustments.

Line 10Enter the shareholder’s share of the S corporation’snon-Massachusetts state and municipal bond in-terest from Schedule S, line 32. For a nonresidentshareholder eligible to apportion, enter the share-holder’s distributive share of the S corporation’snon-Massachusetts and municipal bond interestmultiplied by the apportionment per centage inSchedule F, line 5. This income is not taxed by theU.S. government, but is taxable in Massachusetts.

Each shareholder should include the line 9 total inForm 1, 1-NR/PY, or 2, Schedule B, line 3.

Line 11Enter the shareholder’s share of the S corpora-tion’s royalty income from Schedule S, line 33. Fora nonresident shareholder eligible to apportion,enter the shareholder’s distributive share of the Scorporation royalty income from Schedule S, line33, multiplied by the apportionment percentagein Schedule F, line 5.

The correct Massachusetts amount of the share-holder’s share of royalty income may differ fromthe comparable U.S. total reported on the share-holder’s Form 1, or 1-NR/PY, Schedule E, Part I,line 1; or Form 2, Schedule E, line 1. Each share-holder should make adjustments to reflect the cor-rect Massachusetts amount in Form 1, or 1-NR/PY,Schedule E, Part I, line 2; or Form 2, Schedule E.Each shareholder should enclose a statement tothe shareholder’s Massachusetts tax return and ex -plain any adjustments.

Line 12Enter the shareholder’s share of the S corpora-tion’s income from Schedule S, line 34. For a non-resident shareholder eligible to apportion, enterthe shareholder’s distributive share of the S cor-poration’s other income from Schedule S, line 29multiplied by the apportionment percentage inSchedule F, line 5.

The correct Massachusetts amount of the share-holder’s share of other income may differ fromthe comparable U.S. total reported on the share-holder’s Form 1, 1-NR/PY; or 2. Each partnershould make adjustments on the applicable linesof Form 1, 1-NR/PY, or 2 to reflect the correctMassachusetts amount. If any income reported tothe S corporation from a Real Estate Mortgage In -vestment Conduit (REMIC) in which the S corpora-tion is a residual interest holder is reported in line12, then any such adjustment should be made onForm 1, or 1-NR/PY, Schedule E, Part I, line 2 orForm 2, Schedule E. Each shareholder should at-tach a statement to the shareholder’s Massachu-setts tax return and explain any adjustments.

Line 13Enter the shareholder’s share of the S corporation’sshort-term capital gain from Schedule S, line 35.For a nonresident shareholder eligible to apportion,enter the shareholder’s share of the S corporation’sshort-term capital gain or loss multiplied by theapportionment percentage in Schedule F, line 5.

The correct Massachusetts amount of the share-holder’s share of short-term capital gain may differfrom the comparable U.S. total reported on theshareholder’s Form 1, or 1-NR/PY, Schedule B, line8; or Form 2, Schedule B. Each shareholder shouldmake adjustments in Form 1, 1-NR/PY, Schedule B,line 8 or Form 2, Schedule B, to reflect the correctMassachusetts amount. Each shareholder shouldenclose a statement with the shareholder’s Mass-achusetts tax return and explain any adjustments.

Line 14Enter the shareholder’s share of the S corporation’sshort-term capital losses from Schedule S, line 36.For a nonresident shareholder eligible to appor-tion, enter the shareholder’s share of the S corpo-ration’s short-term capital losses multiplied by theapportionment percentage in Schedule F, line 5.

The correct Massachusetts amount of the share-holder’s share of short-term capital losses may dif-fer from the comparable U.S. total reported on theshareholder’s Form 1, 1-NR/PY or 2, Schedule B.Each shareholder should make adjustments inForm 1 or 1-NR/PY, Schedule B, line 14; or Form2, Schedule B. Each shareholder should enclose astatement with the shareholder’s Massachusettstax return and explain any adjustments.

Line 15Enter the shareholder’s share of the S corporation’sgain on the sale exchange or involuntary conver-sion of property used in trade or business and heldfor one year or less from Schedule S, line 37. For anonresident shareholder eligible to apportion, enterthe shareholder’s share of the S corporation’s gainon the sale exchange or involuntary conversion ofproperty used in trade or business and held for oneyear or less multiplied by the apportionment per-centage in Schedule F, line 5.

The correct Massachusetts amount of the share-holder’s share of gain on the sale, exchange or in-voluntary conversion of property used in trade orbusiness and held for one year or less may differfrom the comparable U.S. total reported on theshareholder’s Form 1, 1-NR/PY; or 2, Schedule B.Each shareholder should make adjustments inForm 1 or 1-NR/PY, Schedule B, line 10; or Form2, Schedule B. Each shareholder should enclose astatement with the shareholder’s Massachusettstax return and explain any adjustments.

Line 16Enter the shareholder’s share of the S corporation’sloss on the sale, exchange or involuntary conver-sion of property used in trade or business and heldfor one year or less from Schedule S, line 38. For anonresident shareholder eligible to apportion, enterthe shareholder’s share of the S corporation’s losson the sale exchange or involuntary conversion ofproperty used in trade or business and held for oneyear or less multiplied by the apportionment per-centage in Schedule F, line 5.

The correct Massachusetts amount of the share-holder’s share of loss on the sale, exchange or in-voluntary conversion of property used in trade orbusiness and held for one year or less may differfrom the comparable U.S. total reported on theshareholder’s Form 1, 1-NR/PY; or 2, Schedule B.Each shareholder should make adjustments inForm 1 or 1-NR/PY, Schedule B, line 15, or Form2, Schedule B. Each shareholder should enclose astatement with the shareholder’s Massachusettstax return and explain any adjustments.

Line 17Enter the shareholder’s share of the S corporation’slong-term capital gain or loss from Schedule S,line 39. For a nonresident shareholder eligible toapportion, enter the shareholder’s share of thelong-term capital gain or loss multiplied by the ap -portionment percentage in Schedule F, line 5.

The correct Massachusetts amount of the share-holder’s share of long-term capital gain or lossmay differ from the comparable U.S. total reportedon Form 1, 1-NR/PY, or 2, Schedule D, line 1. Eachshareholder should make adjustments in Form 1,1-NR/PY, Schedule D, line 9; or Form 2, ScheduleD, to reflect the correct Massachusetts amount.Each shareholder should enclose a statement withthe shareholder’s Massachusetts tax return and ex -plain any adjustments.

Line 18Enter the shareholder’s share of the S corporation’ssection 1231 gain or loss from Schedule S, line 40.For a nonresident shareholder eligible to apportion,enter the shareholder’s share of the S corporation’ssection 1231 gain or loss multiplied by the ap-portionment percentage in Schedule F, line 5.

The correct Massachusetts amount of the share-holder’s share of section 1231 gain or loss maydiffer from the comparable U.S. total reported onthe shareholder’s Form 1, 1-NR/PY, or 2, ScheduleD. Each shareholder should make adjustments inForm 1 or 1-NR/PY, Schedule D, line 9; or Form2, Schedule D. Each shareholder should enclose astatement with the shareholder’s Massachusettstax return and explain any adjustments.


Line 19Enter the shareholder’s share of the S corpora-tion’s other long-term capital gains or losses fromSchedule S, line 41. For a nonresident shareholdereligible to apportion, enter the shareholder’s shareof the S corporation’s other long-term capital gainsand losses multiplied by the apportionment per-centage in Schedule F, line 5.

The correct Massachusetts amount of the share-holder’s share of other long-term capital gains orlosses may differ from the comparable U.S. totalreported on the shareholder’s Form 1, 1-NR/PY,or 2, Schedule D. Each shareholder should makeadjustments in Form 1 or 1-NR/PY, Schedule D,lines 6 and/or 9, or Form 2, Schedule D, lines 6and/or 11.

Line 20Enter the shareholder’s share of the S corporation’slong-term gains on collectibles from Schedule S,line 42. For a nonresident shareholder eligible toapportion, enter the shareholder’s share of the Scorporation’s long-term gains on collectibles mul-tiplied by the apportionment percentage in Sched-ule F, line 5.

The correct Massachusetts amount of the share-holder’s share of long-term gains on collectiblesmay differ from the comparable U.S. total reportedon the shareholder’s Form 1, 1-NR/PY or 2, Sched -ule D, line 1. Each shareholder should make ad-justments in Form 1 or 1-NR/PY, Schedule D, line9 or Form 2, Schedule D. Each shareholder shouldenter the correct Massachusetts amount in Form 1or 1-NR/PY, Schedule D, line 11 or Form 2, Sched -ule D, line 13. Each shareholder should enclose astatement with the shareholder’s Massachusettstax return and explain any adjustments.

Shareholder’s Basis InformationThe information in lines 22 through 26 may beneeded by the shareholder to determine the limita-tion of losses passed through to the shareholder,or the gain or loss from sale or other dispositionof the shareholder’s stock and indebtedness.

Line 23For a calendar year S corporation, enter in line 23the number of the shareholder’s shares and theamount of the shareholder’s federal basis as of De-cember 31, 1985. If the S corporation was a fiscalyear entity, enter the number of the shareholder’sshares and the amount of the shareholder’s federalbasis as of the last day of the taxable year prior tobecoming a Massachusetts S corporation.

If the S corporation became a Massachusetts Scorporation after December 31, 1985, enter in line23 the number of the shareholder’s shares and theamount of the shareholder’s federal basis as ofthe last day of the taxable year prior to becoming

a Massachusetts S corporation. If reporting a fed-eral basis other than December 31, 1985, specifythe year.

Line 25Enter the net amount of the adjustments madeto the shareholder’s Massachusetts basis forthe taxable year. The shareholder’s basis shouldbe increased by the shareholder’s distributiveshare of S corporation income, decreased by dis-tributions to the shareholder, and otherwise ad-justed to reflect changes that affect the basis ofthe stock. Make comparable entries for adjust-ments to the shareholder’s Massachusetts indebt-edness. More detailed information on Massachu-setts basis adjustment is provided in Regulation830 CMR 62.17A.1.

Line 26Enter the net amount of the adjustments made tothe shareholder’s federal basis for the taxable year.Make comparable entries for adjustments to theshareholder’s federal indebtedness.

Declaration Election CodeUnder declaration election code, the S corporationshould indicate how the shareholder will be meet-ing its Massachusetts tax obligation. The S cor-poration should select the “Composite” oval if it isfiling a composite return on behalf of the share-holder, or if a lower-tier pass-through entity hasfiled a composite return on behalf of the share-holder. The S corporation should select the “Mem -ber self-file” oval if the shareholder has indicatedto the S corporation on the Form PTE-EX that theshareholder is a resident or will be filing its ownreturn (i.e., has checked boxes 1 or 3 under Indi-vidual Certification, or boxes 2 or 3 under Organi-zation Certification).

For more information about the Form PTE-EX,see the Guide for Pass-Through Entities, at www.mass. gov/dor. The S corporation should select“Exempt PTE” if the shareholder has indicated tothe S corporation, by checking box 4 under Orga-nization Certification on the Form PTE-EX, thatthe shareholder is a pass-through entity all ofwhose members are exempt from withholding.The S corporation should select “Non-profit” ifthe shareholder has checked box 1 under Organi-zation Certification on the form PTE-EX. If theshareholder has not made a declaration to the Scorporation that the shareholder is exempt fromwithholding, the S corporation should select the“Withholding” oval.

If the S corporation has selected the “Composite”oval under the Declaration election code and theS corporation itself made estimated payments onbe half of the shareholder, the S corporation shouldindicate on line 34 the estimated payments that theS corporation made on behalf of the shareholder.

This number should be the shareholder’s share ofthe amount entered on line 13 of the Form MANRCR, the composite return. This number is infor -mational only, and is not to be used by the part-nership or the partner for any other purpose.

Line 28If the S corporation has selected the “Withholding”oval under the declaration election code, the S cor-poration should indicate on line 28 the amount ofMassachusetts tax that the S corporation withheldon the shareholder’s distributive share and paid forthe year on the shareholder’s behalf.

Line 29If the S corporation has selected the “Composite”oval under the Declaration election code and the Scorporation itself made estimated payments on be -half of the shareholder, the S corporation shouldindicate on line 29 the estimated payments that theS corporation made on behalf of the shareholder.This number should be shareholder’s share of theamount entered on line 13 of the Form MA NRCR,the composite return. This number is informationalonly, and is not to be used by the partnership orthe partner for any other purpose.

Line 30If the S corporation is a member of one or morelower-tier entities, and amounts were withheld forthe S corporation by one or more of those entities,the S corporation should indicate how much ofthe total amount withheld by all lower-tier entitiesof which the S corporation is a member shouldbe allocated to this shareholder.

Line 31If the S corporation is a member of one or morelower-tier entities, and composite returns with estimated payments were made on behalf ofthis shareholder by one or more of those entities,the S corporation should indicate the amount ofestimated payments made on behalf of thisshareholder. This number should be the share-holder’s share of the amount entered on line 13 ofthe Form MA NRCR, the composite return. Thisnumber is informational only, and is not to beused by the S corporation or the shareholder forany other purpose.

Excise CalculationThe excise calculation schedule is used to calculatethe various measures of the Massachusetts cor-poration excise. These are:

◗ a tax of $2.60 per $1,000 on taxable Mass achu -setts tangible prop erty or taxable net worth, which -ever applies. If the return is for a short taxable year,the tangible property or taxable net worth shouldbe prorated; and


◗ a tax of 8.00% on income attributable to Massachusetts.

The law also provides for a minimum excise of $456.

Line 3S corporations in Massachusetts are taxed at 8.0%on certain built-in gains taxable at the federal levelunder IRC sec. 1374 and on passive invest mentincome taxable at the federal level under IRC sec.1375. Such income earned by an S corporationmust be entered in line 3 of the excise calculationbut subtracted from any income amount to be en-tered in line 5.

The taxable Massachusetts built-in gains and pas-sive interest income is the amount of the federalgain times the Massachusetts apportionment per-centage found in Schedule F, line 5.

Line 8An addition to tax applies for taxpayers who havedeferred the gain, and the tax associated with thatgain, on certain installment sales. This addition totax is measured by an interest charge on the taxthat has been deferred.

Include in line 8 an additional tax amount repre-senting an interest charge on the deferred tax ongain from certain installment sales with a salesprice over $150,000 if you are not a dealer and theaggregate face amount of installment obligationsarising during the tax year and outstanding as ofthe close of the tax year exceeds $5 million. Formore information see G.L. c. 62C, sec. 32A (a)and I.R.C. sec. 453A (a)–(c).

Also include in line 8 an additional tax amountrepresenting an interest charge on the deferredgain from the installment sale of time shares andresidential lots, if the sale meets one of the follow-ing criteria: 1) the sale is of a timeshare right for 6weeks or less; 2) the sale is for the recreationaluse of specified campgrounds; or 3) the sale is fora residential lot and neither the dealer nor some-one related to the dealer is obligated to make anyimprovements on the lot. For more informationsee G.L. c. 62C, sec. 32A (b) and I.R.C. sec.453(l)(2)(B).

If you are a partner in a partnership or a share-holder in an S corporation, the entity is required tosend you the information you need to calculate theaddition to tax under this provision.

To the extent practicable, Massachusetts followsfederal income tax rules in determining the de-ferred gain from installment sales subject to theinterest-charge addition to tax. For more informa-tion, visit DOR’s website at www.mass.gov/dorand Internal Revenue Service Publication 537.

Line 10Corporations which are not members of a com-bined group filing a combined report enter theamount from Schedule CR, line 15 and encloseany required schedules showing the calculationof the individual credits taken on Form 355S. Cor-porations which are members of a combinedgroup and which are taking credits against exciseshown on this return must complete Schedule CRbut should not duplicate schedules previously at-tached to Form 355U.

Line 12If the corporation is a member of a combinedgroup filing a combined report, enter the amountfrom this corporation’s Schedule U-ST, line 41.Corporations which are not members of a com-bined group enter “0.”

Line 13Corporations taxable under M.G.L. Ch. 63, sec.32D and 39 are subject to a minimum excise of$456. If the corporation is a member of a com-bined group, it must file a combined report andits income measure of excise is determined onSchedule U-ST, line 41 and not on Form 355 or355S. If the member's own income measure ofexcise from Schedule U-ST, line 41 (as referencedon line 12 above) is greater than or equal to $456,enter “0” on line 12. Otherwise, subtract theamount on line 8 from $456 and enter the resulton line 13. If the corporation is not part of a com-bined group, enter $456 on line 13.

Line 15Any corporation that wishes to contribute anyamount to the Natural Heritage and EndangeredSpecies Fund may do so on this form. This amountis added to the excise due. It increases theamount of the corporation’s payment or reducesthe amount of its refund.

Line 20Enter the amount of any withholding tax frompass-through entities. This is the amount of with-holding from all Schedules 3K-1, lines 33 and 35that the corporation has received.

Line 27The following penalties may apply:

Penalty for Underpayment of Estimated TaxAn additional charge may be imposed on corpo-rations which underpay their estimated taxes orfail to pay estimated taxes. Form M-2220, Under-payment of Massachusetts Estimated Tax by Cor-porations, should be used to compute any under-payment penalty.

Penalty for Failure to FileThe penalty for failure to file a tax return by the duedate is 1% of the tax due per month (or fractionthereof), up to a maximum of 25%.

Penalty for Late PaymentThe penalty for failure to pay the total pay mentdue with this form is 1% of the tax due per month(or fraction thereof), up to a maximum of 25%.

Any corporation which fails to pay its tax when duewill be subject to interest charges.

Line 29Enter the total payment due. Checks for this amountshould be made payable to the Commonwealth ofMassachusetts. Checks should have the corpora-tion’s Federal Identification number written in thelower left corner.

Privacy Act NoticeThe Privacy Act Notice is available upon request orat www.mass.gov/dor.

Tax Matters Partner An S corporation shall designate a Tax MattersPartner. The Tax Matters Partner must be a share-holder. If the S corporation does not designate aTax Matters Partner, the Tax Matters Partner shallbe the shareholder having the largest number ofvoting shares in the S corporation at the close ofthe year involved, unless shareholders holding anaggregate of more than 50% of the S corporationsdesignate a different Tax Matters Partner. If desig-nation based upon the largest voting shares isimpracticable, the Commissioner shall select aninterim Tax Matters Partner, pending selection of aTax Matters Partner by the entity, and shall notifyNotice Members of the selection.

SignatureWhen the form is complete, it must be signed bythe treasurer or assistant treasurer or, in their ab-sence or incapacity, by any other princi pal corpo-rate officer. The Social Security number of thesigning officer should be entered next to the datethe return was signed. If you are filing as anauthorized delegate of the appropriate corporateofficer, check the box in the signature section andenclose a copy of Massachusetts Form M-2848,Power of Attorney. The form must also be signedby any paid preparer of the form. The form shouldbe mailed to: Massachusetts Department of Rev-enue, PO Box 7025, Boston, MA 02204.


Schedule M-1.FederalReconciliationSchedule M-1 reports the taxpayer’s current yearnet income and expenses as they are or would beshown on U.S. Form 1120, lines 1 through 28, incalculating gross income under the provisions ofthe U.S. IRC and the deductions allowable in cal-culating net income under the code.

Schedule M-1 must be filed by all S corporations re-quired to complete Schedule E. S corporations withreceipts of less than $6 million on an annualizedbasis also are not required to file Schedule M-1.

Corporations reporting their income on Form355U as part of a combined group that file Sched-ule U-M with that combined report are not re-quired to file Schedule M-1.

S corporations, if required to file Schedule M-1,must complete and file Schedule M-1 as if theywere a C corporation.

Schedule NIRSchedule NIR, Net Income Reconciliation recon-ciles income reported to shareholders with the in-come reported on the taxpayer’s consolidated U.S.tax return and is similar to U.S. Schedule M-3,Part 1.

Taxpayers must file Schedule NIR if required to filea U.S. Schedule M-3 with their U.S. return. This in-cludes corporations that are part of a consolidatedreturn that as a group meets the requirement to fileU.S. Schedule M-3. For corporations that are filingas members of a Massachusetts combined group,only one Schedule NIR need be filed and it mustbe filed by the principal reporting corporation.

Schedule NIR and instructions are available atwww.mass.gov/dor.


Documents

2014 Massachusetts SCorporation Excise Return … Massachusetts SCorporation Excise Return Form 355S Massachusetts has an electronic filing requirement for this form. See TIRs 05-22