Tiered Structures

(a) Unless exempted, each pass-through entity shall withhold applicable tax, as determined under 830 CMR 62B.2.2, on behalf of its members subject to withholding, including members that are pass-through entities. To prevent multiple withholding on the same income, an upper-tier pass-through entity that recognizes distributive share income may subtract amounts withheld by a lower-tier entity from amounts required to be withheld.

(b) An upper-tier entity recognizing distributive share income that has been withheld upon must separately report to each of its members the member's proportionate distributive share of amounts withheld by the lower-tier entity. Any member of an upper-tier entity that is itself a pass-through entity must likewise report proportionate distributive share withheld to each of its members.

(c) Upon written application and with the approval of the Commissioner, a lower-tier entity may meet its withholding obligation for an upper-tier entity by directly withholding from the distributive share income of the members subject to withholding of the upper-tier entity. If approval is granted, the lower-tier entity is required to report the amounts withheld directly to the members, as well as to the upper-tier entity.

(6) Credit for Tax Paid; Members' Estimated Payment Obligation

(a) Credit for Tax Paid. Amounts withheld and paid to the Commissioner by a pass-through entity on behalf of a member shall be considered to be the payment of the tax imposed on the member for distributive share income derived by the member from the pass-through entity for the pass-through entity's taxable year ending within or with the taxable year of the member, and shall be credited against the member's tax liability for the member's taxable year.

(b) Members' Estimated Payment Obligation. Notwithstanding this regulation, 830 CMR 62B.2.2, members shall be responsible for payment of estimated taxes on all of their income, including income from pass-through entities, under M.G.L. c. 62B, § 13 and M.G.L. c. 63B, § 2. Amounts previously withheld and paid to the Commissioner by the pass-through entity on behalf of a member, applicable to the entity's taxable year ending within or with the taxpayer's tax year, may be allowed as a credit, as of the date of receipt by the Department, on the member's estimated tax obligation.

(c) Interest and Penalties on Underpayment of Estimated Tax. Withholding by the pass-through entity may not be sufficient to satisfy members' estimated payment obligation on their pass-through entity income because of differences in timing and amount of required payments between 830 CMR 62B.2.2, and M.G.L c. 62B, §13 or M.G.L. c. 63B, § 2, as applicable. Interest and penalties at the rates established under M.G.L. c. 62C, §§ 32 and 33 will be imposed on the amount of any underpayment as calculated under M.G.L. c. 62B, § 14(a) and (b) or M.G.L. c. 63B, § 3, as applicable.

Example (6)(c)1. Pass-Through Entity and Member both use the calendar year as their taxable year. Member is a corporation. Pass-Through Entity allocates Member's distributive share of $100,000 of taxable Massachusetts-source income to Member in year 1 and the same amount in year 2. For year 2, Member seeks to be within the estimated payment safe harbor by paying 100% of its prior year corporate excise. To avoid interest and penalties, Member must make an estimated payment in an amount totaling 40% x year 1 corporate excise on or before March 15. Pass-Through Entity, relying on its safe harbor of paying 100% of Member's prior year corporate excise, must withhold and pay, on behalf of Member, an amount totaling 25% x corporate excise tax rate x $100,000 on or before April 30th. Member may reduce its June 15 estimated tax payment by the amount paid by Pass-Through Entity on April 30.

Example (6)(c)2. Pass-Through Entity and Member both use the calendar year as their taxable year. Member is an individual. Pass-Through Entity makes its first installment payment on behalf of Member for the taxable year on April 30. Member's first estimated payment is due April 15th. Member must make her first estimated payment on April 15, and may take a credit on her June 15th estimated payment for the amount paid by Pass-Through Entity on her behalf on April 30th.

Example (6)(c)3. Same facts as Example (6)(c)2, except that Pass-Through Entity makes its first installment payment on behalf of Member for the taxable year on April 15th. Member's estimated payment obligation with regard to her income from Pass-Through Entity has been met.