(9) S corporations that are subject to combined reporting.

(a) Income measure filing requirements. An S corporation (including its QSubs) that is doing business in Massachusetts is subject to combined reporting within the meaning of M.G.L. c. 63, § 32B when it is engaged in a unitary business with one or more other corporations, including one or more S corporations that are subject to combined reporting. See generally 830 CMR 63.32B.2: Combined Reporting ; see also 830 CMR 63.32B.2(4)(a). In such cases, if the S corporation is subject to the income measure excise, it is required to be included in the combined report and to compute its net income subject to tax and its income measure consistent with the rules for combined reporting. See generally 830 CMR 63.32B.2(7), and (7)( l ), Example 8 (discussing the rules that apply when an S corporation is to file as a member of a combined group). Where an S corporation is not itself subject to the income measure excise, it is nonetheless required to be included in a combined report if it is engaged in a unitary business with one or more other corporations that are subject to the income measure excise and any member of such group that is a C corporation. In contrast, in any instance where an S corporation is engaged in a unitary business only with one or more other S corporations, and the aggregate gross receipts of such corporations is less than $6 million (that is, no corporation in the combined group is liable for the income measure excise), the group is not required to file a combined report. An S corporation is not subject to combined reporting unless it is engaged in a unitary business with one or more other corporations. Therefore, in any case in which an S corporation owns one or more QSubs but is not engaged in a unitary business with one or more other corporations apart from its ownership of these QSubs, the S corporation is not subject to combined reporting, because a QSub is not treated as an entity separate from its parent for Massachusetts corporate excise purposes. (b) Net operating loss issues in the case of an S corporation member of a combined group. 1. General rules with respect to NOLs where a combined group contains one or more S corporations. An S corporation subject to M.G.L. c. 63, § 32D included in a combined report can share NOL carry forwards with other members of the combined group, to the extent such sharing would be allowed if the taxpayer were a C corporation. See 830 CMR 63.32B.2(8): Net Operating Loss Carry Forwards . In such cases, the NOL attributable to and carried forward by the S corporation member of the combined group must be calculated according to the carryforward calculation rules set forth at 830 CMR 62.17A.2(8)(c)3. However, an S corporation that is a financial institution subject to M.G.L. c. 63, § 2B is not allowed to carry forward an NOL or to use an NOL carryforward where the loss being carried forward was generated by another combined group member. 2. Restrictions on loss sharing with respect to Category one income. An S corporation in combined reporting is generally able to share NOL carryforward losses of other group members in the manner of a C corporation under 830 CMR 63.32B.2(8): Net Operating Loss Carry Forwards , and the sharing rules at 830 CMR 63.32B.2(8)(b), however, an S corporation member of a combined group may not take an NOL carryforward deduction when computing its income measure excise on Category one income. See 830 CMR 62.17A.2(8)(c)3.a. See also Code § 1374(b), (d), Treas. Reg. § 1.1374-5. (c) Non-income measure; minimum excise. An S corporation that is included in a combined report is subject in its own right to the non-income measure excise or the minimum excise, as applicable, and must file accordingly. See M.G.L. c. 63, §§ 32D, 39. (d) Effect of a combined report on an S corporation’s calculation of its shareholders’ distributive share income. An S corporation included in a combined report cannot apply the provisions related to combined reporting at 830 CMR 63.32B.2: Combined Reporting or 830 CMR 62.17A.2(9) for purposes of determining a shareholder’s distributive share of income. See 830 CMR 62.17A.2(4). Rather, the income or loss for such a shareholder is determined by the S corporation using the provisions of M.G.L. c. 62 and the Code, without regard to the entity’s combined reporting obligations. See 830 CMR 62.17A.2(4). The amount of such income to be apportioned to Massachusetts in the case of a non-resident shareholder taxable under M.G.L. c. 62, § 5A is also determined without reference to the combined reporting provisions. See generally 830 CMR 63.32B.2(7): Apportionment of Income Computation; Tax Computation Where No Apportionment , and (7)( l ), Example 8 (discussing the rules that apply as to the taxation of S corporation shareholders, including non-resident shareholders, when an S corporation is to file as a member of a combined group). REGULATORY AUTHORITY 830 CMR 62.17A.2: M.G.L. c. 14, § 6(1); M.G.L. c. 62C, § 3. Date of Promulgation: November 22, 2013