MA Says Partnerships Subject to Technical Termination Despite TCJA Repeal

| 7/25/2019
IRC Section 708(a) generally provides that an existing partnership is considered as continuing unless it is terminated. Effective for taxable years beginning after Dec. 31, 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) repealed IRC Section 708(b)(1)(B), which provided that a partnership is considered terminated if within a 12-month period there is a sale or exchange of 50% or more of the total interest in the partnership capital and profits (technical termination). Accordingly, after enactment of the TCJA, a partnership will be considered as terminated only if no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in the partnership.

Most states have conformed to the repeal of IRC Section 708(b)(1)(B). However, the Massachusetts Department of Revenue (DOR) recently published a technical information release (TIR) stating that Massachusetts does not conform to the federal repeal. As a result, a partnership will be treated as terminated for Massachusetts tax purposes if it meets the criteria for technical termination.

In general, all partnerships with a usual place of business in Massachusetts must file a return with the DOR on or before the 15th day of the third month following the close of the taxable year to avoid penalties. Under the TIR, for Massachusetts tax purposes, a terminated partnership will have until the due date of its federal return, taking into account any federal extensions, to file both of its Massachusetts short-year returns.

Despite repeal of technical terminations for federal tax purposes, partnerships that file in Massachusetts should continue to identify and track when a technical termination under repealed IRC Section 708(b)(1)(B) occurs and file midyear returns as prescribed by the DOR.

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