Tax Alert

 

2009 Tax Filing Season Great Strides

MRS, taxpayers and the tax preparer community have made tremendousstridesin recent years to improvetax return and payment processing. Not that many years ago, it took up to 12 weeks to processreturns, send refunds and deposit money into the bank, nearly allof whichwas donebypaper. We've come a long way since then, with the installation of theMaine Automated Tax System (MATS),MaineImaging Processing System (MIPS),Electronic Funds Transfer (EFT), automated workflow, real time updates, electronic filing and payment mandates, the MRS website, and now the installation of the Maine Revenue Integrated Tax System (MERITS).

Here are a few of the major accomplishments:

  • 59% (363,881) ofindividual income tax returns filed, to date, (619,997)were filed electronically. This is an increase of8% over last year.
  • 60% (76,044) of 2009sales tax returns filed (125,798)were filed electronically a 50% increase! Beginning withFebruary2009, the number of sales tax returns filed electronicallybegan to exceed the number of paper returns filed. Beginning April 1, monthly sales tax filers were required to file their returnselectronically, and during the month of May 87% of the sales tax returns received were filed electronically.
  • 54% (54,027) of 2009 withholding returns filed (99,584) were filed electronically an 11% increase.
  • The number of tax payments made viaElectronic Funds Transfer (EFT) has increased 6.5% over last year. 61% (429,171)of all payments processed throughApril (1,068,315)werepaid viaEFT.
  • 1040 refunds processed this yearwere, on average, issued within 9days of receipt of the return. Thisis incrediblyfastcompared to not so manyyears ago when it often took 6 to 12 weeks to issue a refund.
  • 49.62% (210,121) ofall refundsprocessed (423,462)wereprocessed viaDirect Deposit (DDR).
  • Notices and assessments are mailed daily and most tax payments are deposited within 24 hours of receipt.
  • MRS generally answers more than 99% of all telephone calls made to the agency.
  • Timely filed paper 1040 returnswere processedby April 30 (2 days earlierthan last year and a new record).

All of us at MRS wish to extend a special thanks to all tax practitioners for the work they have done, especially those who utilize MRS E-File systems, to help make these accomplishments possible.

Net Operating Losses

In February, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was enacted which, among other things, allows for a five-year carryback provision for eligible small businesses that have a net operating loss (“NOL”) in 2008. Maine law disallows federal NOL carrybacks through an addition modification in the year of the carryback ( see 36 MRSA 5122(1)(H) and 5200-A(1)(H)). The increase in the number of carryback years enacted by ARRA does not change Maine law and any 3-, 4- or 5-year carryback for federal income tax purposes will not be allowed for Maine income tax purposes.

Maine does allow, however, a recapture of any previously disallowed carrybacks through a subtraction modification in years subsequent to the loss year ( see 36 MRSA 5122(2)(H) and 5200-A(2)(H)). The Maine recapture modification may not reduce a taxpayer's tax to less than zero, but generally any unused portion can be carried over for as long as the related federal carryforward period is open.

Recently enacted legislation, however, does not allow any Maine NOL deduction for tax years beginning in 2009, 2010 and 2011. The NOL not deducted due to this restriction may be deducted in tax years beginning after 2011 as long as the deduction does not reduce the tax to less than zero and the deduction is taken during the federal carryforward period plus the number of years the NOL was not deducted during the 2009-2011 period. [MRS is currently summarizing all tax law changes enacted during this session of the legislature. The summary will be published in a future Maine Tax Alert.]

If a business files a federal amended return to claim an NOL carryback, a Maine amended return must also be filed to show the adjustment. The Maine amended return for a carryback year, even though it will not alter the state liability of the taxpayer, will show the NOL addition modification that will subsequently be recaptured in years after the loss year. An amended Maine return reconciling the federal carryback may also prevent a taxpayer from being selected for audit due to a difference in income between the Maine and federal returns.

Estate Tax

For deaths in 2009, the federal exclusion amount for estates increased to $3,500,000. The Maine estate tax exclusion amount, however, remains at $1,000,000. The larger difference between the federal and Maine exclusion amounts is likely to result in more estates falling into the category called “gap estates.” Gap estates are those that are taxable to Maine, but fall below the federal level of taxability. Gap estates must file Form 706ME with MRS, including a pro forma federal Form 706.

Maine Revenue Services would like to remind estate planners and tax practitioners that transferring Maine property into a trust, LLC or other pass-through entity will in many cases not avoid the estate tax on nonresident decedent estates. Maine estate tax law specifically treats any real or tangible personal property transferred to a pass-through entity as real or tangible personal property directly owned by the decedent ( see 36 MRSA 4064 & 4064-A and MRS Rule 601.07(D)(2)).

The March 2009 issue of Trusts & Estates magazine includes an article (The Increased Exemption Creates Opportunity) that claims estates may benefit from transferring property to an LLC due to possible state tax reduction. The article says “Depending on state law, a decedent may be able to avoid the imposition of a particular state's estate tax by placing real estate located in that state in an entity that is taxed in the state of the decedent's domicile.” Unless the entity is engaged in a for-profit business, Maine looks beyond the entity to which real or tangible personal property has been transferred and taxes the underlying assets as if the entity did not exist and the property was owned directly by the decedent. MRS Rule 601 states:

 

If the trust, limited liability company or other pass-through entity in which the decedent has an interest does not actively carry on a business for the purpose of profit and gain, the entity will be disregarded for the purpose of including real and tangible personal property located in Maine in the Maine gross estate of the decedent.

Where a decedent transferred real or tangible personal property situated in Maine to a trust, limited liability company or other pass-through entity, the Assessor will determine whether the transfer was for a valid business purpose by looking at the economic realities of the transfer. Tax avoidance is not considered a valid business purpose.

Department
Telephone Numbers
FAX Numbers
E-mail Addresses
Taxpayer Service Center
(207) 626-8475
(207) 287-5855
Audit
(207) 822-0450
(207) 822-0453
Central Registration
(207) 621-5129
(207) 287-3733
division.uctax@maine.gov
Collections & Compliance
(207) 624-9595
(207) 287-6627
compliance.tax@maine.gov
Corporate Tax
(207) 624-9670
(207) 624-9694
corporate.tax@maine.gov
E-file Help Desk (1040 ONLY)
(207) 624-9730
(207) 287-6628
efile.helpdesk@maine.gov
Electronic Funds Transfer
(207) 624-5625
(207) 287-6975
efunds.transfer@maine.gov
Estate & Fiduciary Income Tax
(207) 626-8480
(207) 624-9694
estatetax@maine.gov
Fuel Tax
(207) 624-9609
(207) 287-6628
fuel.tax@maine.gov
Forms Request Line
(207) 624-7894
Individual Income Tax Assistance
(207) 626-8475
(207) 624-9694
income.tax@maine.gov
Insurance Premium Tax
(207) 624-9753
(207) 624-9694
Payment Plan/Income Tax
(207) 621-4300
(207) 621-4328
compliance.tax@maine.gov
Payment Plan/Other
(207) 624-9595
(207) 287-6627
compliance.tax@maine.gov
Practitioners’ Hotline
(207) 626-8458
(207) 624-9694
Property Tax
(207) 624-5600
(207) 287-6396
prop.tax@maine.gov
Public Communications
(207) 626-8478
(207) 624-9694
Sales Tax
(207) 624-9693
(207) 287-6628
sales.tax@maine.gov
Tax Clearance Letters
(207) 624-9628
(207) 287-6627
Office of Tax Policy
(207) 624-9789
(207) 287-3618
Taxpayer Advocate
(207) 624-9649
(207) 287-3618
taxpayer.advocate@maine.gov
NexTalk
1-888-577-6690
Withholding Tax
(207) 626-8475
(207) 624-9694
withholding.tax@maine.gov
Tax Violations Hot Line
(207) 624-9600

This publication is designed to keep taxpayers, tax practitioners and the general public informed of developments, problems, questions and matters of general interest concerning Maine tax law, policy and procedure. The articles in this newsletter are not designed to address complex issues in detail, and they are not a substitute for Maine tax laws and/or regulations

Suggestions for the Tax Alert?

Please contact: Public Communications (207) 626-8478
Maine Revenue Services
24 State House Station
Augusta, Maine 04333-0024