Hi there,
This is what I found on the MA state web site;
Massachusetts Personal Income Tax
The Massachusetts personal income tax statute does not adopt the federal deduction for theft loss under IRC § 165 for individual investors. Thus, the federal rules described in Rev. Rul. 2009-9 and the optional federal safe harbor method for a qualified investor to claim a theft loss deduction under Rev. Proc. 2009-20 are not applicable for Massachusetts personal income tax purposes. In a further departure from federal law, an NOL deduction is not allowable under the Massachusetts personal income tax statute. As a result, Massachusetts does not allow the federal NOL carryback or carryforward.
The purpose of this TIR is to explain the Massachusetts income tax abatements and deductions potentially available to qualifying individual taxpayers who invested in a criminally fraudulent investment arrangement, but only if the taxpayer was not complicit in the fraud:
- Potential abatements for prior years. A taxpayer, whether or not he or she elects the federal safe harbor under Rev. Proc. 2009-20, may be eligible to file an application for abatement for open tax years to exclude from Massachusetts income "fictitious" income that had been reported by the taxpayer in those open tax years.
- Potential deduction for capital loss in subsequent year when actual loss finally determined and sustained. A taxpayer with a "qualified loss" from a "specified fraudulent arrangement", as these terms are defined under Rev. Proc. 2009-20, may be eligible for a capital loss deduction for Massachusetts personal income tax purposes when such loss is ultimately sustained. Massachusetts capital loss treatment may apply whether or not a taxpayer elects the federal safe harbor.
- Double abatements and double deductions not allowed. Where more than one taxpayer was involved in one or more direct or indirect investments in a criminally fraudulent investment arrangement, whether through or in the form of a partnership, joint investment arrangement, or otherwise, each affected taxpayer is allowed to file an application for abatement to exclude only his or her proportionate share of any fictitious income reported in an open tax year. Likewise, each participant in such an investment with a "qualified loss" from a "specified fraudulent arrangement" is allowed to claim a capital loss deduction for only his or her proportionate share of the capital loss when ultimately sustained.
This TIR also explains that taxpayers must include in gross income any recoveries of cash or property in excess of their basis in their investment. Their basis will generally reflect the amounts contributed by the taxpayers plus any income reported for years that are not open for abatement, less any withdrawals.
I. Abatements for Wholly or Partly Fictitious Income Previously Reported in Open Tax Periods
An individual who filed a Massachusetts personal income tax return declaring income that is later determined to be fictitious due to a criminally fraudulent investment arrangement is generally eligible to file an application for abatement of tax associated with this fictitious income for tax years in which such fictitious income was reported that are open under the statute of limitations for abatement. In such cases, fictitious income will generally be amounts reported to the taxpayer as part of the fraud, on Forms 1099 or otherwise, and previously included in the taxpayer's income reported for Massachusetts tax purposes, where the taxpayer establishes that such amounts did not in fact constitute actual income that had been actually or constructively received (or accrued). [2]
A taxpayer who uses the federal safe harbor and who is foreclosed from filing federal amended returns for prior years may, nevertheless, submit an application for abatement of Massachusetts personal income tax to establish in fact that certain items of gross income were wholly or partly fictitious for years that remain open under G.L. c. 62C, §§ 30, 37. See Section III below with regard to substantiation of abatement claims.
I hope this helps!
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
