United States

Massachusetts: Disaster Loss Election Not Allowed for Massachusetts Tax Purposes

Aug 28, 2017
From KPMG TaxWatch

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A Massachusetts appeals court recently upheld an Appellate Tax Board decision addressing whether Massachusetts conforms to the federal treatment of disaster losses. The taxpayer, an electric company subject to the tax on utility corporations, incurred a $62 million loss as a result of the great ice storm of 2008. For federal tax purposes, the loss was considered a “disaster Loss,” which could be taken “into account for the taxable year immediately preceding the taxable year in which the disaster occurred" at the election of the taxpayer. After this election is made, the disaster loss is "treated for purposes of this title [federal law] as having occurred in the taxable year for which the deduction is claimed." The taxpayer amended its federal return electing to take a disaster loss deduction for the 2008 storm on its 2007 return. The taxpayer subsequently sought to amend its 2007 Massachusetts return to claim the disaster loss. On audit, the deduction was denied.

The Massachusetts tax code expressly excludes deductions for "losses sustained in other taxable years” but provides an exception for net operating loss deductions. The Board held—and the court agreed—that the unambiguous language in the law precluded the deduction of a disaster loss in any year other than the year the loss was sustained. In the court’s view, the statutory language provided for an "explicit and plainly-worded departure from deductions allowed for federal tax purposes” and if the legislature had intended to adopt the federal treatment of disaster losses, it would have expressly done so. The court also observed that Massachusetts courts have often concluded that federal tax concepts "are not always dispositive" in interpreting Massachusetts statutes and that deductions are a matter of legislative grace.” Please contact Mike Desrochers at 617-988-1396 with questions on Massachusetts Electric Co. v. Commissioner of Revenue.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.