Reed Smith Client Alerts

Authors: Brent K. Beissel Michael A. Jacobs

Welcome to the latest Reed Smith Massachusetts State Tax Quarterly Update. In this update, we’ll look at the most recent developments in Massachusetts corporate tax, provide some administrative updates, and discuss some hot topics for the second half of 2015.

Corporate Tax

The Appellate Tax Board decides two more “true debt” cases – MassMutual wins; Staples loses

Mass Mutual – The ATB treats intercompany notes as bona fide debt producing deductible interest.

In a major taxpayer victory, the Appellate Tax Board (“ATB”) has put the brakes on the Department’s efforts to continue to further expand its authority to deny interest deductions on intercompany obligations using a “true debt” analysis. On June 12, 2015, the ATB issued its findings of fact and report in the related cases of Massachusetts Mutual Life Insurance Company and MassMutual Holding LLC v. Commissioner and MML Investor Services, Inc. v. Commissioner1, in which the ATB held that intercompany obligations between two MassMutual affiliates2 was true debt. As true debt, interest paid on the obligations was deductible in computing the net income measure of the corporate excise tax. MassMutual was also able to prove that the interest payments qualified for an exception to add-back because the intercompany obligations were bona fide debt primarily entered into for a valid business purpose, were supported by economic substance, and reflected fair value or consideration.