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Accumulated adjustments account, or AAA, an account similar to that described in Code § 1368(e), but as calculated under Massachusetts law. In general, the AAA is a tracking mechanism for an S corporation’s accumulated, undistributed taxable income determined under M.G.L. c. 62. The AAA generally is increased by the income that the S corporation reports to its shareholders as distributive share income, and is decreased by the amount of distributions the S corporation makes to its shareholders. The AAA is an account of the S corporation at the entity level, and is not apportioned among the shareholders. With respect to an entity that for any period was an S corporation for federal purposes, but was not an S corporation for Massachusetts purposes, for example, a corporate trust taxable under the now-repealed M.G.L. c. 62, § 8, the following rules apply: the AAA for such entities generally includes the total amount of the entity’s undistributed income that was reported to shareholders federally as distributive share income under 830 CMR 63.39.1, as may be adjusted based on federal/state differences in calculating income, but was not taxable as distributive share income to shareholders in Massachusetts, and instead was actually taxed at the entity level. Income of such an entity that was not taxed at the entity-level is not added to the AAA, but depending on the circumstances, may be subject to inclusion in the Massachusetts Earning and Profits account, as defined in 830 CMR 62.17A.2. Business corporation, any corporation, or any other entity as defined in M.G.L. c. 156D, § 1.40, including an S corporation, whether the corporation or other entity may be formed, organized, or operated in or under the laws of the Commonwealth or any other jurisdiction, and whether organized for business or for non-profit purposes, that is classified for the taxable year as a corporation for federal income tax purposes. Code , with respect to personal income taxation under M.G.L. c. 62, the federal Internal Revenue Code, as modified in M.G.L. c. 62, and particularly in M.G.L. c. 62, § 1(c); and with respect to corporate level taxation under M.G.L. c. 63, the federal Internal Revenue Code, as amended and in effect for the taxable year, as more fully defined in M.G.L. c. 63. Commissioner, the Commissioner of the Massachusetts Department of Revenue or the Commissioner’s duly authorized representative. Common ownership , for purposes of the income measure of the corporate excise as determined under M.G.L. c. 63, §§ 2B or 32D, when one or more S corporation shareholders own, in the aggregate, directly or indirectly, more than 50% of the total combined voting control or more than 50% of the total value of shares of two or more corporations. Stock is owned by a person under Common Ownership if the person owns the stock directly or if ownership may be attributed to the person under the constructive ownership rules of Code § 318. Note: Common Ownership differs in certain respects from the definition of the term “common ownership” applied for purposes of combined reporting under M.G.L. c. 63, § 32B. See 830 CMR 63.32B.2(2): Definitions: Commonly Owned or Common Ownership . One significant difference between the two definitions is that for purposes of combined reporting a single shareholder must either directly or indirectly own 50% or more of two or more corporations for there to be common ownership. See 830 CMR 63.32B.2(2): Commonly Owned or Common Ownership. This requirement applicable to combined reporting does not apply to 830 CMR 62.17A.2(2): Common Ownership. In addition, for purposes of 830 CMR 62.17A.2 both an owner’s voting rights in stock owned and the value of stock owned are relevant to the determination of voting control, whereas in the context of combined reporting only voting rights are considered. See 830 CMR 63.32B.2(2): Definitions: Commonly Owned or Common Ownership . Example (2.1). S Corporation X and S corporation Y are owned by A, B, and C, with each owner having a ⅓ interest. S Corporation X and S corporation Y exhibit common ownership within the meaning of 830 CMR 62.17A.2. However, S corporation X and S corporation Y do not meet the definition of 830 CMR 63.32B.2(2): Definitions: Common ownership , because no single shareholder owns or is considered to own 50% or more of each S corporation. Example (2.2). Individual A owns 40% of the stock of S corporation X, 30% of the stock of S corporation Y, and 40% of the stock of S corporation Z. Individual B owns 20% of the stock of X, 40% of the stock of Y, and no stock in Z. No other stockholder owns more than 5% of the stock of each S corporation, X, Y, and Z. There is no other common stockholder among X, Y, and Z, and there is no other constructive ownership of the stock under Code § 318. X and Y exhibit common ownership because together Individual A and Individual B own more than 50% of each of them. Z does not share common ownership with X and Y because there is no combination of owners that hold more than 50% of the stock of Z. While X and Y have common ownership for purposes of 830 CMR 62.17A.2, there is no common ownership under 830 CMR 62.32B.2(2): Combined Reporting , since no single common owner of X and Y directly or indirectly owns stock representing more than 50% of the voting control of each corporation. See 830 CMR 63.32B.2(2): Definitions: Common ownership . Example (2.3). Husband owns 30% of the stock of S corporation Y and 0% of the stock of S corporation Z. Wife owns 0% of the stock of Y and 10% of the stock of Z. Unrelated Investor owns 30% of the stock of Y and 41% of the stock of Z. No other stockholder owns more than 5% of the stock of each S corporation Y and Z, with the result that there is no other common owner between Y and Z. Y and Z are under common ownership under this definition because of the application of the constructive ownership rules of Code § 318. The stock holdings of Husband and Wife, although under separate legal ownership, are considered as being owned by both spouses under Code § 318. When combined, the voting power of Husband, Wife, and Unrelated Investor is greater than 50% for both Y and Z. Y and Z are not under common ownership for purposes of 830 CMR 63.32B.2: Combined Reporting , because no single common owner of Y and Z owns stock representing more than 50% of the voting control of each corporation. Example (2.4). Shareholder A owns 60% of the value of shares in S corporation X, but only holds 40% of the voting control in X. Shareholder A owns 55% of the value of shares of S corporation Y, but holds only 30% of the voting control of the corporation. X and Y meet the requirement of common ownership under 830 CMR 62.17A.2, because greater than 50% of the value of shares is owned by the same owner or owners. However, X and Y are not under common ownership through A’s ownership interest in the context of 830 CMR 63.32B.2: Combined Reporting , because Shareholder A does not own more than 50% of the voting control in X or Y. Distributive share , the shareholder's aggregate daily portion of each item of income, loss, deduction, or credit determined by the shareholder's daily percentage of ownership of shares of stock in an S corporation. DOR , the Massachusetts Department of Revenue. Financial institution, an entity that is a financial institution within the meaning of M.G.L. c. 63, § 1. Gross income , with respect to taxes imposed under M.G.L. c. 63, gross income as defined in M.G.L. c. 63, §§ 1, 30.3; and with respect to taxes imposed under M.G.L. c. 62, Massachusetts gross income as defined in M.G.L. c. 62, § 2. Massachusetts Earnings and Profits , an account that is increased and decreased based on the current and accumulated earnings and profits of an S corporation, without regard to apportionment, for any taxable year. As a general principle, the Massachusetts Earnings and Profits account includes:
(a) corporate earnings for any period where the S corporation was a C corporation for federal and/or Massachusetts purposes;
(b) in the case where an S corporation has acquired or merged with a C corporation with the S corporation as the surviving entity, those corporate earnings attributable to the former C corporation; and,
(c) any other earnings and profits of any S corporation for any taxable year, including, with respect to an entity that for any period was an S corporation for federal purposes, but was not an S corporation for Massachusetts purposes, for example, a corporate trust taxable under the now-repealed M.G.L. c. 62, § 8, the entity’s undistributed pre-apportioned income that was not taxed in Massachusetts, including such amounts that accrued under the circumstances described in 830 CMR 62.8.2(4)(b).
For transition rules applicable to S corporations after the enactment of St. 1986, c. 488, § 39, see 830 CMR 62.17A.1(10)(c). The Massachusetts Earnings and Profits account does not include distributive share income for any period the entity was treated as an S corporation for Massachusetts purposes under M.G.L. c. 62, § 17A. Massachusetts earnings and profits include items that are required to be taken into account by the S corporation, or that are otherwise attributed to the S corporation, under the applicable Code sections, such as in a corporate acquisition under Code § 381, to the extent consonant with Massachusetts law. Net operating loss (NOL), the amount by which the deductions allowed to an S corporation under M.G.L. c. 63, § 30.4, including the dividends-received deduction allowed under M.G.L. c. 63, § 38(a)(1), and excluding any deductions for net operating loss, exceed gross income for the taxable year under M.G.L. c. 63. A net operating loss does not include a capital loss. Pass-through entity, an entity whose income, loss, deductions and credits flow through to its members for Massachusetts tax purposes, including:
(a) a general partnership;
(b) limited partnership;
(c) limited liability partnership;
(d) limited liability company that is treated as a partnership for Massachusetts tax purposes;
(e) an S corporation;
(f) an estate not taxed at the entity level; and
(g) a trust not taxed at the entity level, including a grantor-type trust.
QSub, a federal qualified subchapter S subsidiary, as defined in the Code, as amended and in effect for the taxable year. S corporation, an entity described at Code § 1361, as amended and in effect for the taxable year. Tiered structure , a pass-through entity that has a pass-through entity as a member. Total receipts, gross receipts or sales (including income) realized in a taxable year less returns and allowances, including service charges, carrying charges, and any other charges included in sales prices. Total receipts include sales taxes or other excises where the sales tax or excise is imposed directly on the taxpayer, but not where such taxes or excises are simply collected by the S corporation and remitted to the taxing authority. Total receipts include dividends, interest, all tax-exempt income, royalties, capital gain net income, gross rents, deemed receipts, recognized built-in gain, other passive income, reimbursed costs, the income includable in the taxable year that is attributable to an installment transaction as defined in M.G.L. c. 62, § 63, the S corporation’s pro rata share of the total receipts of any pass-through entity in which the S corporation holds an interest, and all other income. Consistent with the above, total receipts include Category one income, which generally refers to income to the S corporation that is taxed at the entity level for federal income tax purposes, as defined in 830 CMR 62.17A.2(8)(b)1., as well as Category two income, as defined in 830 CMR 62.17A.2(8)(b)1. Similarly, total receipts include both Massachusetts source income and non-Massachusetts source income. The cost of goods sold or the cost of operations shall not be deductible in determining total receipts. Total receipts include any deemed income that is attributed under the Code to an S corporation that takes part in an election under Code § 338(h)(10). Unitary Business , a group of two or more corporations related through common ownership, as defined in 830 CMR 62.17A.2, that are sufficiently interdependent, integrated or interrelated through their activities so as to provide mutual benefit and produce a significant sharing or exchange of value among them or a significant flow of value between the separate parts. The term Unitary Business shall be construed to the broadest extent permitted under the Constitution of the United States. Unitary Business generally corresponds to the definition of a unitary business as applied for purposes of combined reporting under M.G.L. c. 63, §32B. See 830 CMR 63.32B.2(2). Also, this definition is further explained at 830 CMR 63.32B.2(3), except to the extent that the term Common Ownership, appearing in 830 CMR 62.17A.2, differs from 830 CMR 63.32B.2(2). Example (2.5). A group of three shareholders owns six S corporations, (S1 – S6), and as to each of the six corporations this ownership meets the definition of common ownership. Each S corporation operates as a separate franchise of a single restaurant chain. Each of the restaurants maintains its own set of books and has a separate on-site manager. The six corporations are presumed to be engaged in a unitary business, because business activities conducted by corporations under common ownership that are in the same general line of business will generally constitute a unitary business. See 830 CMR 63.32B.2(3)(b): Likely Unitary Situations .