Thanks to legislation submitted by the Massachusetts Bar Association, joint tax filers who qualify for relief through the Internal Revenue Code based on understatements reported by their spouses are now afforded the same liability protections under Massachusetts law. The MBA amendment, “An Act Providing for Equitable Relief from Liability for Joint Filers of Tax Returns,” was signed into law by Gov. Charlie Baker on Thursday, Jan. 10, after passing the House and Senate at the close of the 2018 legislative session.
The bill signing culminated a more than three-year effort by the MBA and its Taxation Law Section Council to eliminate disparities between state and federal law regarding eligibility for innocent spouse relief. Previously, joint filers could obtain relief from the IRS and still be held liable in Massachusetts by the Department of Revenue (DOR), said Taxation Law Section member Christopher G. Beck, who authored the legislation.
“I don’t know if it’s something people are aware of until it happens to them,” Beck said of the potential for different outcomes among individual taxpayers. “This amendment is important for those people.”
Enacted in 1993, Massachusetts’ Innocent Spouse Law had applied only in those cases where:
- The understatement [was] attributable to erroneous items of the other individual filing the joint return;
- The individual seeking relief from the liability establishe[d] that, in signing the return, the individual did not know, and did not have reason to know, that there was an understatement;
- Taking into account all the facts and circumstances, it [was] inequitable to hold the individual seeking relief from liability liable for the deficiency in tax for such taxable year attributable to the understatement; and
- The individual seeking relief from liability elect[ed] … the application of this provision not later than 2 years after the commissioner ha[d] begun collection activities, as defined by the commissioner, with respect to the individual making the election.
While these four criteria remain in place, the amendment updates Massachusetts General Laws by adding two new subsections that have formed part of the Internal Revenue Code since 1998. The first avenue for relief, which can be sought concurrently with a claim under the existing statute, allows an eligible applicant to pay only his or her allocable portion of the tax deficiency. Most importantly, according to Beck, the legislation also grants discretionary power to the DOR commissioner to waive liability for those who do not qualify for equitable relief under the previous two subsections.
“The equitable relief subsection provides relief for taxpayers who don’t meet the criteria of the original law, but should, in fairness, get relief,” said Beck. “It allows the DOR to be more flexible in dealing with these cases.”
With an amendment to the Innocent Spouse Law discussed by the Taxation Section as early as 2015, and first filed one year later, Beck said the final bill represents “a strong collective effort” across multiple legislative sessions.
“It is due to the continued ingenuity of our members that the MBA remains the preeminent voice of the legal profession in Massachusetts,” said MBA Chief Legal Counsel and Chief Operating Officer Martin W. Healy. “This bill is the latest example of the MBA’s commitment to creating pro-consumer law and policy, as we have done countless times when called upon by our partners in the legislature and the courts. Our Tax Council should be applauded for its outstanding efforts to bring needed reform to the state’s tax laws.”