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Massachusetts Issues Brownfields Tax Credit Guidance

[fa icon="calendar"] Nov 22, 2013 3:04:00 PM / by Warren Kirshenbaum

      After two Drafts, both of which were submitted for public and practitioner comment, as well as receiving and reviewing hundreds of comment letters, the Massachusetts Department of Revenue (DOR) this week released Directive 13-4, which is a “Guidance with Respect to Brownfields Tax Credit Applications” (the “Directive”).   The DOR, which is the governmental department with the obligation to process Brownfields Tax Credit (BTC) applications and award BTC certificates, issued the Directive as a means to set forth a more defined set of procedural rules for the implementation of the BTC program.   The first draft of the Directive, released in April 2013, and the second draft of the Directive released in October of 2013, were both reviewed and commented on by many industry professionals.  The Cherrytree Group was involved in the review process, providing comments on the draft Directive to the Massachusetts DOR for review and consideration prior to their issuance of the Final Directive.

      Although there are some changes from the earlier drafts, the basic goal of the Directive remains the same: to apply a narrower and more defined set of rules to the BTC application and issuance process.  The Directive addresses several issues, which are referred to as four Directives.  Directive 1 will apply to all BTC applications submitted on or after April 5, 2013, Directives 2, 3, and 4 will apply to all pending and future applications.

The issues addressed in the Final Directive are as follows:

  • Directive 1: The Directive in its final form states that: (a) For a for-profit entity or individual, the Credit will now be “generated” in the year in which the permanent solution or remedy operation status (ROS) is filed.  Prior to the Directive, the Credit generated in the calendar year in which the BTC application was filed.  Effectively, this means that the “clock is ticking” on properties where the permanent solution has already been achieved, or the ROS has been filed but no BTC application has been filed.  Practically speaking, any property owner with a permanent solution or ROS should not hesitate to apply for the BTC as the five year carryover is now a window that has already begun to close.  For a for-profit entity or an individual the taxpayer’s claim year is its tax year, which is measured including all extensions.  
  • (b) For a Non-Profit Claimant, the same rules as stated in 1(a), above apply in terms of the year the credit is generated, but the claim year is the calendar year the filing is made to DEP, rather than the tax year.

An important linguistic distinction, is that the Directive references a “permanent solution” rather than a Release Action Outcome or RAO, as the prior drafts had done.  This is because DOR, on the advice of the Massachusetts Department of Environmental Protection (DEP) decided that the Directive should use the “permanent solution” language, as the new Massachusetts Contingency Plan (MCP) terminology will refer to a permanent solution with restrictions or a permanent solution without restrictions, rather than an RAO.  The “with restrictions” or “without restrictions” language also phases out the Activity and Use Limitation (AUL) which is the current manner in which a restriction is recorded to a property.

  • Directive 2: As the BTC was not transferable prior to June 24, 2006 only tax credits generated after that date (i.e. a permanent solution or filed ROS post June 24, 2006) that still have time remaining on the 5 year carryover may be transferred. Moreover, a taxpayer can only transfer what it has.  The rules now mandate that, only those tax credits that could not yet have been applied to earlier year’s taxes can be transferred, but that taxpayer is allowed to amend file returns to allocate unused tax credit amounts.  Thus, the DOR will reduce a tax credit by these prior usable tax credits.
  • Directive 3: Costs incurred subsequent to an ROS submittal with the DEP are potentially eligible for the credit. If a property has already achieved ROS status, additional costs incurred in creating a permanent solution (or incurred to remove an AUL) may be included on the tax credit application, but costs to make the ROS filing are not includable.
  • Directive 4: As non-profit entities were only allowed to receive the BTC after June 24, 2006, a Non-Profit that has achieved a permanent solution, or filed an ROS prior to June 24, 2006 cannot receive the BTC, regardless of whether such an entity currently has an application for the BTC.
      Similarly, as transfers of the BTC were only authorized on June 24 2006, any BTC obtained based upon the achievement of a permanent solution or an ROS filed prior to June 24, 2006, cannot transfer said BTC regardless of whether there is a pending application for the BTC.

       Although this may seem like a lot of changes to the BTC program, the function of the BTC program in Massachusetts remains the same.  The Massachusetts BTC helps owners/developers of properties that we contaminated through no fault of their own to recapture half of the remediation expenses.  If you have any questions on the Directive or have land you think may be eligible for the BTC, please call our office at (617) 431-2266 or email info@cherrytree-group.com.

 

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Warren Kirshenbaum

Written by Warren Kirshenbaum

Warren is the President and CEO of the Cherrytree Group, a tax credit consulting, brokerage, and syndication firm.

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