Elder Law Center

One Essex Street

Saugus, Massachusetts 01906

Telephone 781.233.4444   Fax 781.231.2222

December 8, 2005

THE GOVERNOR’S XMAS PRESENT

Governor Romney got his wish. Instead of sending tax bills to nearly 120,000 taxpayers indicating that they will owe additional taxes for the year 2002, he will instead be sending notices of refunds to 145,000 taxpayers. 

Back in September I wrote about the Peterson case and how it resulted in many Massachusetts taxpayers owing additional income taxes for the 2002 tax year.  The Department of Revenue has sent over 21,000 bills to citizens for those taxes but on Friday, December 2, 2005 Revenue Commissioner Alan LeBovidge has stopped sending them out.

 According to the Department of Revenue, the state would have collected between $150 million and $200 million from nearly 120,000 taxpayers. These taxpayers had sold assets at a gain, between January 1, 2002 and May 1, 2002, when the tax rates ranged from zero to 5%. An increase to 5.3% was implemented on May 1, 2002 and was found to be unconstitutional because it started in the middle of the year. The Supreme Judicial Court decided that in order to correct the constitutional issue, they would institute the tax increase as of January 1, 2002.

 Last Thursday, December 1^st, Governor Romney proposed, and the legislature has agreed, to delay the implementation of the tax increase that took place on May 1, 2002 to January 1, 2003.  This has the effect of creating refunds for everyone who had a capital gain from May 1, 2002 to December 31, 2002. Taxpayers who had a capital gain during that time could see their tax rate drop from 5.3% to zero. It is estimated that about 145,000 taxpayers had gains during that time period and it will result in the state owing somewhere between $225 million and $275 million.

I understand that refunds will be returned to the taxpayers involved over a 4 year period instead of all at once. As soon as this new law is passed, those taxpayers that received bills will get letters telling them to disregard the preliminary bills that they had received. Those who have already paid the tax from these “Peterson” notices will automatically receive refunds.

Taxpayers who had capital gains during the last 8 months of 2002 will have to file amended returns to request the refund that they are entitled to. This means digging out your 2002 income tax return and looking to see if you reported any capital gains on assets that were sold from May 1, 2002 to December 31, 2002. Generally, there is a three year statute of limitations on amending an income tax return. I believe that this period would start on the date in which you filed your 2002 income tax return and run for 3 years. So let’s say you filed your tax return on March 1, 2003, you would have until March 1, 2006 to file for the refund. That’s only about three months away. I recommend that you check your return as soon as possible.

There is a bonus for this upcoming tax season, especially for seniors. Massachusetts House Bill #2511 has passed and this bill raises the maximum assessed value for a senior’s primary residence from $452,000 to $600,000 to determine eligiblity for the Senior Circuit Breaker Credit. With the rapid increase in real estate prices over the last few years, many seniors otherwise eligible for the credit have been denied because the value of their home had increased too rapidly. The maximum eligible value of $600,000 will now be adjusted annually in accordance with a “Price-of-Housing Index” that is expected to keep pace with rising real estate values. The Boston Consumer Price Index that had been used in the past but did not keep pace with real estate values.

This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).

 Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org

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