Guenter J. Zisler v. Commissioner of Revenue (October 13, 2006)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



GUENTER J. ZISLER   	   v.	COMMISSIONER OF REVENUE

Docket No. C271677				Promulgated:
							October 13, 2006



This is an appeal under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 from the refusal of the appellee to allow an abatement of personal income tax sought by the appellant for calendar year 2001 (the "2001 tax year").    
Commissioner Gorton heard the appeal and was joined in the decision for the appellant by former Chairman Foley and by Commissioners Scharaffa, Egan, and Rose.  
These findings of fact and report are made at the request of the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.


Guenter J. Zisler, pro se.

Kevin M. Daly, Esq. and Arthur M. Zontini, Esq. for the appellee.



FINDINGS OF FACT AND REPORT
On the basis of a Stipulation of Agreed Facts and testimony and exhibits entered into evidence at the hearing of this appeal, the Appellate Tax Board ("Board") made the following findings of fact.
The appellant, Guenter J. Zisler, is a Massachusetts resident.  He filed his Massachusetts Personal Income Tax Return ("Form 1") for the 2001 tax year on October 15, 2002, pursuant to a valid extension of time to file, and paid the taxes shown as due at that time.  On December 5, 2002, the Commissioner of Revenue ("Commissioner") issued to the appellant a Notice of Assessment for the 2001 tax year, reflecting accrued underpayment of estimated income tax penalties of $3,172.84 plus interest of $943.17.  On January 6, 2003, the appellant filed an Amended Return for the 2001 tax year seeking a Massachusetts charitable contributions deduction equal to the full amount of the deduction allowed on his federal income tax return ("Form 1040") for the 2001 tax year and a refund of the penalty for underpayment of estimated taxes.  The Commissioner's Office of Appeals conducted a hearing on June 3, 2003 and issued a letter of determination to the appellant on June 11, 2003, stating that the appellant was not entitled to the claimed charitable deduction and that the penalty for underpayment of estimated taxes was properly imposed.  On June 20, 2003, the Commissioner issued a Notice of Abatement Determination to the appellant denying his Application for Abatement / Amended Return on the basis that the self-assessment of tax on the appellant's original Form 1 was correct.  On June 21, 2003, the Commissioner issued a second Notice of Abatement Determination to the appellant denying an abatement for the penalty imposed on the underpayment of estimated taxes.  The appellant seasonably filed his appeal with the Board on August 12, 2003.  On the basis of the foregoing, the Board found that it had jurisdiction over this appeal.
On December 12, 2000, the appellant donated a parcel of real estate to the City of Marlboro.  The appellant reported charitable contributions totaling $1,702,077.00 on his Form 1040 for tax year 2000.  Pursuant to Internal Revenue Code ("Code") § 170(b), only $356,703.00 was allowable for deduction in tax year 2000, and the balance of $1,345,374.00 was available as a carryforward to subsequent tax years.  On his Form 1040 for the 2001 tax year, the appellant claimed charitable contributions totaling $1,346,939.00, including the amount of the carryforward from tax year 2000.  Pursuant to Code § 170(b), $387,241.00 was allowable for deduction from his federal taxes for the 2001 tax year, $356,703.00 of which was the carryforward from tax year 2000.  
The Massachusetts Legislature adopted the deduction for charitable contributions with an effective date of January 1, 2001.  See St. 2000 c. 159, § 119.  On December 21, 2001, the Commissioner promulgated 830 CMR 62.2.3, the regulation at issue in this appeal.  830 CMR 62.2.3 expressly prohibited taxpayers from deducting any amount of charitable contributions that represented a carryforward for a contribution made prior to the 2001 tax year.
The appellant timely paid his estimated tax payments for the fourth quarter of the 2001 tax year based upon a projection prepared on December 27, 2001 by Stephen Kurzman, his accountant, which included a Massachusetts deduction for charitable contributions of $387,241.00, the same amount as the appellant's federal income tax deduction.  However, Mr. Kurzman testified that sometime before the appellant filed his Form 1 for the 2001 tax year, Mr. Kurzman explained to the appellant that the Commissioner had issued 830 CMR 62.3.2, particularly §4(b), and that this regulation disallowed deductions for contributions made prior to January 1, 2001.  The appellant instructed his accountant to prepare his 2001 Form 1 in accordance with the Commissioner's regulation.  The resulting Form 1 showed a charitable contributions deduction of $1,565.00, the actual amount of charitable contributions the appellant made during the 2001 tax year, and a tax due of $24,627.00.  The Form 1 also showed an underpayment of estimated taxes penalty of $1,051.00, which the appellant paid.  When the appellant filed the Application for Abatement / Amended Return, he claimed as a charitable contributions deduction the same amount as was allowed to him under Code § 170 and taken on his Form 1040 for the 2001 tax year.  He also requested a refund of the penalty for underpayment of estimated taxes.  
For the reasons detailed in the following Opinion, the Board ruled that the appellant was entitled to a Massachusetts charitable contributions deduction on his 2001 Form 1 in the same amount which was allowed on his Form 1040 for the same tax year.  Appellant's original estimated tax payment, based on a charitable deduction equal to his federal deduction, was correct.  Accordingly, the Board issued a decision for the appellant in this appeal.

OPINION
At issue in this appeal is the application of a Massachusetts deduction for charitable contributions, G.L. c. 62, § 3 B(a)(13).  On July 28, 2000, the Governor signed into law Chapter 159, § 119 of the Acts of 2000, which provided as follows:
Paragraph (a) of Part B of section 3 of chapter 62 of the General Laws, as amended by section 68 of chapter 127 of the acts of 1999, is hereby amended by adding the following subparagraph:-
(13) An amount equal to the amount of the charitable contribution deduction allowed or allowable to the taxpayer for the taxable year under section 170 of the Code.  All requirements, conditions and limitations imposed upon charitable contributions under the Code shall apply for purposes of determining the amount of the deduction hereunder except that a taxpayer shall not be required to itemize his or her deductions in his or her federal income tax return.
(emphasis added).  This legislation had an effective date of January 1, 2001.  St. 2000, c. 159, § 488.  
On September 29, 2000, the Commissioner issued Technical Information Release 00-09, "Tax Changes in the Fiscal Year 2001 Budget," which stated that "[t]he Department [of Revenue] will issue a regulation providing details on the Massachusetts charitable deduction."  On December 21, 2001, the Commissioner promulgated 830 CMR 62.3.2.  Section 4(b) of that regulation provided that "[t]he Massachusetts deduction for charitable contributions shall be the amount that results after any amounts representing charitable contributions made prior to January 1, 2001 and carried over to the current year on the taxpayer's federal income tax return are subtracted from the starting figure."  The regulation thus disallowed as a carryover amount any charitable contributions made prior to the effective date of the legislation creating the Massachusetts deduction.
The appellant contended that under the plain language of the statute in effect during 2001, he was entitled to use the full amount of the charitable contributions deduction allowable under Code § 170, including the carryovers from tax year 2000, in calculating his estimated Massachusetts income tax payments and his actual Massachusetts income tax.  The Commissioner countered that deduction of the carryovers from tax year 2000 amounted to a retroactive application of the statute and, therefore, his regulation was a reasonable and correct interpretation of G.L. c. 62, § 3 B(a)(13).
G.L. c. 62C, § 3 states: "The [C]ommissioner may prescribe regulations and rulings, not inconsistent with law, to carry into effect the provisions of said statutes, which regulations and rulings, when reasonably designed to carry out the intent and purpose of said provisions, shall be prima facie evidence of their proper interpretation."  See also G.L. c. 14, § 6(1) ("[The Commissioner] shall make . . . reasonable regulations, not inconsistent with law, as may be necessary to interpret and enforce any statute imposing any tax.").  In general, "[w]here a regulation is consistent with the statute which it interprets and represents a reasonable interpretation of that statute, the administrative interpretation is entitled to deference."  Holyoke Gas and Electric Dept. v. Commissioner of Revenue, ATB Findings of Fact and Reports 2002-262, 277-78 (citations omitted).  However, the Supreme Judicial Court has emphasized that "principles of deference . . . are not principles of abdication."  Nuclear Metals, Inc. v. Low-Level Radioactive Waste Management Board, 421 Mass. 196, 211 (1995).  Therefore, "[a]lthough in general deference is given to an interpretation of a statute by the administrative agency charged with its administration, '[a]n incorrect interpretation of a statute . . . is not entitled to deference.'"  Pariser v. Commissioner of Revenue, ATB Findings of Fact and Reports 1995-106, 111 (quoting Massachusetts Hospital Association, Inc. v. Department of Medical Security, 412 Mass. 340, 346 (1992)).          The statutory language of G.L. c. 62, § 3 B(a)(13) leaves no ambiguity in its sweeping incorporation of Code  § 170: "An amount equal to the amount of the charitable contributions deduction allowed or allowable to the taxpayer for the taxable year under section 170 of the Code."  Typically, Massachusetts tax statutes borrow from the federal Code to create "a Federal tax benchmark" for the Massachusetts tax code, and the Legislature then "carv[es] out peculiar variations to further the State's tax policies."  See, e.g., Parker Aff. Cos., Inc. v. Dep't of Revenue, 382 Mass. 256, 261 (1981).  For example, in Rohrbough, Inc. v. Commissioner of Revenue, 385 Mass. 830, (1982), the Supreme Judicial Court emphasized that, with respect to the computation of Massachusetts gross income, "[t]he reference is to the provisions of the Internal Revenue Code and not simply to the amount of gross income shown on a taxpayer's Federal income tax return for the same year.  Although the figure shown as gross income on a taxpayer's Federal return will normally be the gross income for State tax purposes for the same year, this is not always the case."  Id. at 832. 
G.L. c. 62, § 3 B(a)(13), however, does not merely borrow the "provisions" of Code § 170 which give rise to the charitable deduction:  it literally adopts the exact "amount equal to the amount of the charitable contributions deduction allowed or allowable to the taxpayer for the taxable year under section 170 of the Code" (emphasis added).  Prior year carryforwards are a corollary of the amount of the deduction allowed on the federal return, and therefore are part-and-parcel of the deduction amount "allowed or allowable" under Code § 170.  830 CMR 62.2.3 is thus contrary to the plain language of G.L. c. 62, § 3 B (a)(13).  
Moreover, to disallow contributions over the ceiling on deductions for one year, then to disregard the carryforward rule which ameliorates the harshness of the limitation, would be at variance with the careful balance that Code § 170 strikes in determining the amount of the allowable deduction.  This form of cherry-picking is contrary to the clearly-expressed intent of the Legislature, which adopted Code § 170 with "[a]ll [its] requirements, conditions and limitations."  G.L. c. 62, § 3 B (a)(13).  "[T]he Supreme Judicial Court and this Board have previously rejected such selective incorporation of federal law."  Stevenson v. Commissioner of Revenue, ATB Findings of Fact and Reports 1999-85, 91.  See also BankBoston Corporation v. Commissioner of Revenue, ATB Findings of Fact and Reports 2005-450, 474-75 (rejecting a position urged by the taxpayer which "would allow taxpayers to pick and choose from among the provisions" of the relevant Code section "to derive the benefit . . . while escaping the corresponding denial of the [sought-after] deduction").
Furthermore, if the Legislature had intended to restrict or eliminate the charitable deduction carryforward provisions, it certainly could have done so, as it has in other contexts.  See, e.g., G.L. c. 63, § 31A(g) (expressly limiting investment tax credit carryover to "the next succeeding three taxable years").  The Board found no express intent by the Legislature to restrict the carryforwards to those earned after the enactment of the Massachusetts deduction in the express words of the statute; accordingly, the Board declined to infer such intent.  See also Fleet National Bank v. Commissioner of Revenue, ATB Findings of Fact and Reports 2006-137, 143 ("If the Legislature had intended to restrict the subject matter of a taxpayer's appeal, the Legislature could have so specified.  In the absence of a specified Legislative intent to restrict taxpayers' appeals to those tax payments made on or after the effective date of St. 2003, c. 143, § 2 B, the Board declined to infer one.") (citing Town of Boylston v. Comm'r of Revenue, 434 Mass. 398, 404 (2001)).
Finally, allowance of the 2000 carryforward deduction is not retroactive application of G.L. c. 62, § 3 B (a)(13).  Retroactive application would consist of making the charitable contributions deduction available for years prior to the 2001 tax year.  See, e.g., Pielech v. Massasoit Greyhound, Inc., 441 Mass. 188, 192 (2004) (denying plaintiff's attempt to cite a retroactive amendment to the relevant statute to revive a previously-dismissed lawsuit).  Conversely, the appellant was not seeking to offset his Massachusetts income for the 2000 tax year, but was merely calculating the amount of the current year's deduction pursuant to the referenced Code section.  Applying Code § 170 for purposes of determining the 2001 Massachusetts charitable contribution deduction entails a limited look-back to amounts available for carryforward and occurs entirely in relation to calculating the tax liability for the relevant 2001 tax year.  No retroactivity is involved.
On the basis of the foregoing, the Board ruled that 830 CMR 62.2.3 is contrary to the plain meaning of G.L. c. 62, § 3 B(a)(13) and, therefore, not entitled to deference. The appellant was entitled to a Massachusetts charitable contributions deduction in the full amount allowed and allowable on his Form 1040 for the 2001 tax year.  He is, therefore, entitled to an abatement of tax in the amount of $21,598.00 and penalties in the amount of $4,118.00, the full amount claimed by the appellant. 
Accordingly, the Board issued a decision for the appellant in this appeal. 

				THE APPELLATE TAX BOARD



By:  ____________________________________
Thomas W. Hammond, Jr., Chairman




A true copy,


Attest:_____________________________
  	     Assistant Clerk of the Board 

  The accrued penalty of $3,172.84 plus the accrued interest of $943.17 equals $4,116.01.  However, the Notice of Assessment states the total amount due as $3,065.01.  The discrepancy resulted from the appellant's payment of $1,051.00 when he filed his Form 1 for tax year 2001. See infra, page 5.
  The Legislature subsequently amended G.L. c. 62, § 3 B(a)(13) for tax years beginning on or after January 1, 2002, by placing additional restrictions on the charitable contributions deduction "notwithstanding said section 170 of the Code," including the requirement that "the rate of tax on Part B taxable income in section 4 in the prior taxable year was equal to 5 per cent."  The Massachusetts income tax rate on Part B taxable income has held steady at 5.3 per cent since calendar year 2002.  This requirement, therefore, essentially has suspended the Massachusetts charitable contributions deduction indefinitely.
 On December 27, 2001, the Commissioner promulgated Department Directive 01-10 ("DD 01-10"), entitled "Deduction of Charitable Contributions For Taxpayers Whose Charitable Contributions Exceed Federal Deduction Limits."  Consistent with 830 CMR 62.3.2, DD 01-10 states that the federal charitable contributions deduction "must be reduced by any prior-year charitable contribution carryovers it may include" for Massachusetts purposes.

ATB 2006-781