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Elder Law Center One Essex Street Saugus, Massachusetts 01906 Telephone 781.233.4444 Fax 781.231.2222
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September 8, 2005
Legislature Reacts to the Peterson Case Last week I wrote about the Peterson case and how it resulted in many Massachusetts taxpayers owing additional income taxes for the 2002 tax year. Although the Department of Revenue is obligated to bill residents for those taxes, Revenue Commissioner Alan LeBovidge has decided to wait for the Legislature to see what new laws might be passed that would affect those tax liabilities. According to the Department of Revenue, the state would collect between $150 million and $200 million from nearly 120,000 taxpayers. These taxpayers had sold assets at a gain, between January 1, 2002 and May 1, 2002, when the tax rates ranged from zero to 5%. An increase to 5.3% was implemented on May 1, 2002 and was found to be unconstitutional because it started in the middle of the year. The Supreme Judicial Court decided that in order to correct the constitutional issue, they would institute the tax increase as of January 1, 2002. Governor Romney has proposed to delay the implementation of the tax increase that took place on May 1, 2002 to January 1, 2003. This is known as House Bill #4165 and would have the effect of creating refunds for everyone who had a capital gain from May 1, 2002 to December 31, 2002. Taxpayers who had a capital gain during that time could see their tax rate drop from 5.3% to zero. It is estimated that about 145,000 taxpayers had gains during that time period and it would result in the state owing somewhere between $225 million and $275 million. As far as the state is concerned, this is about a $400 million dollar swing. House Bill #4169 and Senate Bill #2156 say that if you end up owing taxes that any interest and penalties will be waived as long as you pay the amount you owe after you receive a “Peterson” notice. These notices are also called a Notice of Intent to Assess (NIA). 30 days after issuance of the “Peterson” NIA the Department of Revenue will issue a Notice of Assessment (NOA) and the taxes must be paid within 30 days of the issuance of the NOA. In addition House Bill #4169 and Senate Bill #2156 make another change. The Commissioner of Revenue is authorized to abate any unpaid tax if the amount does not exceed $50. These Bills would increase this threshold to $100. This means that if a taxpayer owed less than $100, for administrative convenience, the assessment would be waived. So, at this time we don’t know what is going to happen. If the legislature doesn’t pass any bills, taxpayers will be receiving Notices of Intent to Assess totaling $150 million to $200 million. If House Bill #4165 passes, taxpayers will get refunds totaling $225 million to $275 million. Personally, I like Romney’s proposal to give refunds to 145,000 taxpayers instead of making them pay. It would make a nice Christmas present. September will be a busy month in the legislature. Several bills that I am following are having hearings in September. I’ll give you an update next week. Please drive safely; the kids are back in school! This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different). Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds masters in accounting and a masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org
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