Introduction to the Massachusetts Partnership Return

The Massachusetts partnership return is prepared for calendar, fiscal and short year partnerships. Using entries from the federal and the Massachusetts worksheets, the following forms and schedules are prepared for the Massachusetts return:

A composite return may be prepared on behalf of qualifying electing nonresident individual partners. For a composite return to be processed, designated partner information MUST be entered. To identify the designated partner, enter on the Massachusetts Composite Return worksheet the partner number from federal the partner information section that corresponds to the designated partner. When the partner number is not entered, use the appropriate entries on the Massachusetts Composite Return worksheet to enter the designated partner name, address and social security number.

Entries for the composite return on the Generic State Schedule K-1 Information Worksheet and the Massachusetts Composite Return worksheet generate the following forms and schedules:

A composite return can be processed with a Partnership when there are at least 2 nonresident partners and they have no other Massachusetts source income. The "designated partner" information must be entered before the Form NRCR is processed. Entries for the composite return are on the Generic State Schedule K-1 Information Worksheet and the Massachusetts Composite Return worksheet. The partners to be included in the composite return can be selected by either the options on the Massachusetts Composite Return worksheet or on the Generic State Schedule K-1 Information Worksheet and the Massachusetts Composite Return worksheet. See detailed instructions on the Massachusetts Composite Return worksheet.

A complete copy of the federal Schedule K-1, is prepared to file with the Massachusetts partnership return.

Use government view input to generate Forms 355 A-LIHC, 355 E-LIHC, 355 C-LIHC, 355 T-LIHC, A-HRC, C-HRC and T-HRC and schedules EOAC, RFC and H-2. The amount of credit being allotted is computed for each partner who shares in the low-income housing credit. Any entry on Form 355 A-LIHC causes this form to print.

Final and Amended Schedules 3K-1

Schedule 3K-1 is designated as final or amended for any partner whose federal Schedule K-1 is final or amended. In addition, if the Massachusetts return is final or amended, all Schedules 3K-1 are designated as final or amended. Use the Generic State Schedule K-1 Information Worksheet to override these defaults, or to designate a Schedule 3K-1 separately as amended or final.

K-1 Suppression

Use the partner general options worksheet to suppress all state and city Schedules K-1 (or equivalents).

Use the partner general options worksheet to suppress supporting statements for Massachusetts Schedules 3K-1.

Federal Notes and Features

Application for Extension

When the partnership return will be filed after its original due date, Massachusetts Form M-8736, Application for Extension of Time to File Fiduciary, Partnership or Corporate Trust Return, is available. The form can be requested in any of the following ways:

1. Check the "Produce all state extensions" on Federal Extensions worksheet, State Extension section. In this instance, Form M-8736 is produced if Massachusetts is the home state on Federal Basic Data worksheet > General section or there is some input on the Massachusetts interview formsworksheets.

2. Enter "MA" in the "State code" box on Federal Extensions worksheet > State Extension section. Again, M-8736 is produced if Massachusetts is the home state on federal Interview Form 1Federal Basic Data worksheet > General section or there is some input on the Massachusetts worksheets.

3. Enter any Massachusetts extension information on Massachusetts Federal Extension worksheet > Massachusetts Extension section.

Capital Gains and Losses

In order to properly classify capital gains and losses for Massachusetts, only full six-digit date entries, in the MoDaYr format, are valid for dates acquired and sold. An entry of "999999" for date acquired or sold is treated as if the date was blank.

If, on the Installment Sales section of the Income/Deductions worksheet, the computed holding period is overridden with a code of "M" or "L", the gain is treated as Part B taxable income (5.1%). To override this presumption, or in instances where a valid date sold is not available, enter the class code in the "State Use" field on the Installment Sales section of the Income/Deductions worksheet. Enter "6", "5", "4", "3", "2", "1" or "0" to indicate that a gain or loss is subject to 5.1, 5, 4, 3, 2, 1 or 0 percent capital gain treatment.

If long-term capital gain (loss) is overridden on Schedule K - Income/Deductions Override worksheet the gain is subject to the same rate as Part B taxable income (5.1%), and other classes of capital gain income detailed on the Installment Sales section of the Income/Deductions worksheet are suppressed. Similarly, if Section 1231 gain (loss) is overridden on Schedule K - Income/Deductions Override worksheet the gain is subject to the same rate as Part B taxable income (5.1%) and other classes of Section 1231 gain income detailed on the Installment Sales section of the Income/Deductions worksheet are suppressed.

To identify long-term gains on collectibles enter "MC" in the "State Use" field on Gains and Losses section of the Income/Deductions worksheet for each collectible sold at a gain. In order to keep the character they had under prior law, the gain or loss on pre-1996 installment sales is added to long-term gains on collectibles. For other installment sales of collectibles, enter "MC" in the "State Use Only" field on the Installment Sales section of the Income/Deductions worksheet.

Overrides are available for each of these gains on the Capital Gains and Losses section of the Income/Deductions worksheet. For nonresident partners, the apportionment percentage is applied to each of these gains and losses. Overrides are also available on the Capital Gains and Losses section of the Income/Deductions worksheet for the Massachusetts amount of these gains.

Massachusetts follows federal depreciation with the exception that any bonus depreciation claimed under H.R. 3090 is not allowed. This means that the net adjusted basis on any depreciable asset is different for federal and Massachusetts purposes. When these assets are sold a different gain or loss arises. The system automatically computes this difference and carries it to Massachusetts Form 3, line 25. The partners are given a breakdown of this difference by capital gain tax rate.

Use the Capital Gains and Losses section of the Income/Deductions worksheet to override the computed gain difference. The Massachusetts source gain difference is assumed to be the same as the total everywhere. Use the fields in the second column of the Capital Gains and Losses section of the Income/Deductions worksheet to override the Massachusetts source gain difference. Special allocation codes are available to override each capital gain rate difference, both total and Massachusetts source.

Enter other differences and adjustments to Massachusetts capital gains and losses on the Capital Gains and Losses section of the Income/Deductions worksheet.

FS Codes

The Massachusetts partnership return starts with federal ordinary income. All income included on the federal return is included on the Massachusetts return. Except as noted below, FS codes are ignored for the Massachusetts partnership return.

Generally, additions and subtractions to federal ordinary income are handled through entries on the Massachusetts worksheets. The following items from the federal return carry to the Massachusetts return and do not require additional entries on the state worksheets:

Interest on U.S. Obligations

Interest on obligations of the United States carries to Massachusetts Form 3 as a subtraction from federal ordinary income. Specially allocate this item on the special allocations detail section using code 23411.

Municipal Bond Interest

Interest on state and local obligations from states other than Massachusetts carries to Massachusetts Form 3. If the partnership has municipal bond interest from different states, be sure to indicate the source.

If the source of the interest is not indicated, it is assumed to be earned in or out of Massachusetts depending on whether or not Massachusetts is the "home state" indicated on the General Information worksheet. If Massachusetts is the home state, any municipal bond interest for which the source is not given is assumed to be earned on Massachusetts state and local obligations.

For corporate partners it does not matter on which state's obligations the interest is earned. For these partners their share of all state and municipal bond interest is carried to their Massachusetts Schedules 3K-1.

Dividends and Interest

Dividends and interest carry to Massachusetts Form 3. Enter interest and dividend income as described below.

5.1 Percent Interest from Savings Deposits in Massachusetts Banks

Enter 5.1 percent interest income from savings deposits in Massachusetts banks on the Interest Income and Passthrough Items sections of the Income/Deductions worksheet. "Savings and Loan, etc." interest entered on the Interest Income section of the Income/Deductions worksheet is assumed to be from savings deposits in Massachusetts banks. If that is not the case, follow the instructions below for other interest and dividend income. Interest entered on the Passthrough Items section of the Income/Deductions worksheet is assumed to be Massachusetts bank interest. If it is not, use Massachusetts Income/Deductions worksheet.

Specially allocate this item to the partners using code 23409 on the special allocations detail section.

Interest (Other than Mass. Bank Interest) & Dividend Income

Enter interest other than interest from savings deposits in Massachusetts banks on the Interest Income section of the Income/Deductions worksheet. Enter this interest in both the "Savings and Loan, etc." and "State 1 amount" fields. If Massachusetts is being run in a multistate return with New Hampshire, New Jersey, Pennsylvania or Tennessee also enter "MA" in the "State" field.

If interest entered on the Interest Income section of the Income/Deductions worksheet is split between interest from savings deposits in Massachusetts banks and other interest, enter the total in "Savings and Loan, etc." and, for multistate returns, enter "MA" in "State". Enter the other interest in the "State 1 amount" field. Interest from savings deposits in Massachusetts banks is computed by subtracting the amounts entered in the "State 1 amount" field from the amounts in "Savings and Loan, etc".

Dividend income entered on the Dividend Income section of the Income/Deductions worksheet carries to Massachusetts Form 3, page 2, line 14, along with other interest.

Specially allocate dividend income and other interest to the partners using code 23415 on the special allocations detail section.

State, Local and Business Taxes

Only state and city taxes entered on the Trade or Business and Rent and Royalties sections of the Income/Deductions worksheet carry to the Massachusetts return as an addition to federal ordinary income. Use the"State, Local and Foreign Income and Unincorporated Business Taxes or Excises - Override" field on Massachusetts Income/Deductions worksheet to override the amount carried from the above forms.

By using a computer system and software to prepare and transmit my client’s return electronically, I consent to the disclosure of all information pertaining to my use of the system and software to create my client’s return and to the electronic transmission of my client’s tax return to the Massachusetts Department of Revenue, as applicable by law.

General Questions

Q. Does Massachusetts use the generic State Schedule K-1 Information worksheet and the Nonresident Schedule K-1 Equivalent worksheet?

A. Use the Generic State Schedule K-1 Information Worksheet to override the partner's percentage on Massachusetts Schedule 3K-1 along with final and amended Schedule 3K-1 status. The Nonresident Schedule K-1 Equivalent worksheet is not used for Massachusetts. Generally, additions and subtractions from federal ordinary income are handled through entries on the Massachusetts worksheets.

Q. Where do I make the adjustment related to the federal bonus depreciation?

A. Massachusetts does not conform to federal bonus depreciation. For current year acquisitions entered on the depreciation worksheets this adjustment is made automatically. The adjustment is made to federal ordinary income, rental real estate income and income from other rental activities, as applicable. To override this adjustment and any other depreciation adjustment to federal ordinary income, use Massachusetts' Income/Deductions worksheet. To override this adjustment and any other depreciation adjustment when it affects rental real estate income, use Massachusetts > Income/Deductions > Adjustments to Net Income or Loss From Rental Real Estate Activity(ies) > Fed or MA excess depreciation. To override this adjustment and any other depreciation adjustment when it affects income from other rental activities, use Massachusetts > Income/Deductions > Adjustments to Net Income or Loss From Other Rental Activity(ies) > Fed or MA excess depreciation.

When these assets are sold, a different gain or loss arises. The system automatically computes this difference and carries it to Form 3, line 25. The partners are given a breakdown of this difference by capital gain tax rate.

Q. Does Massachusetts use the Allocation and Apportionment worksheets in the federal input?

Property factor codes. Inventories, Land, Buildings, Machinery, Equipment, Furniture and Fixtures, Transportation and delivery equipment, Other depreciable assets, Depletable Assets, Depletable assets accumulated depletion, Leasehold improvements, Supplies, Other tangible property, Buildings construction in progress, Machinery construction in progress, Equipment construction in progress, Transportation & delivery construction in progress, Furniture and fixtures construction in progress, Other construction in progress, Real property rented (system X 8), Tangible property rented (system X 8).

Payroll factor codes. Included in cost of goods sold, Included in cost of operations, Included in compensation of partners, Included in salesmen's salaries, Included in salesmen's commissions, Included in general and administrative, Included in repairs, Included in others.

Sales factor codes. Sales - outside to within state, Sales - within to within state, Sales - within to U.S. government, Sales - within to nontaxable jurisdictions, Interest, Dividends, Rents, Royalties, Sales of real and tangible properties, Sales of intangibles, Receipts from services, Other receipts.

Please refer to the federal instruction guide for the Allocation and Apportionment worksheets for use of these forms and the total everywhere calculation.

Q. What should be done if interest entered on the Interest Income section of the Income/Deductions worksheet is split between interest on savings deposits in Massachusetts banks and other interest?

A. Enter the total in "Savings and Loan, etc." and, for multistate returns, enter MA in "State." Enter the other interest in the "State 1 amount" field. Interest from savings deposits in Massachusetts banks is computed by subtracting the amounts entered in the "State 1 amount" field from the amounts in "Savings and Loan, etc".

Q. Is the Massachusetts apportionment percentage applied to the adjustments for corporate partners on Schedule 3K-1, lines 21 to 23?

A. The apportionment percentage is not applied to these lines. The apportionment factors print on Schedules 3K-1 for corporate partners to assist them in completing Schedule F of the appropriate corporate return.

Q. Is Schedule 3K-1 filled out the same for all partners?

A. No. Lines 21 to 23 are completed for corporate partners; lines 1 to 20 are completed for other partners.

Q. Are there instances where Form 3, Part II, is not completed?

A. Yes. Per state instructions, Part II is not completed if a partnership is made up entirely of corporate partners.