United States

Massachusetts: No Net Worth Subtraction for Subsidiaries Owned Through Pass-Through Entities

Nov 06, 2017
From KPMG TaxWatch

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In Letter Ruling 17-3, the Massachusetts Department of Revenue concluded that a parent corporation could not subtract from the book value of its total assets the book value of its investments in subsidiaries owned through an LLC taxed as a partnership. In computing the net worth component of the Massachusetts corporate excise, a corporation is allowed to deduct the book value of subsidiary business corporations in which the corporation has an eighty percent or more ownership interest. The taxpayer requested a ruling as to whether it could subtract the book value of two corporations wholly-owned by an LLC that was more than 80 percent owned by the taxpayer. The Department concluded that although a business corporation’s net worth is reduced by the book value of investments in “subsidiary business corporations,” this subtraction does not extend to investments in an LLC that has not elected to be taxed as a corporation. Furthermore, for net worth tax purposes there was no look-through or constructive ownership principle that would treat the parent corporation as owning its proportionate share of LLC’s investments. In other words, the so-called aggregate theory of partnerships, which provides that a partner in a partnership is treated as owning its proportionate share of the partnership’s underlying assets, has no necessary application in the context of an excise based on the book value of an entity’s assets. Please contact George Burns at (617) 988-6759 with questions. 


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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.