BankBoston Corporation v. Commissioner of Revenue (September 6, 2005)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


BANKBOSTON CORPORATION		v. 	COMMISSIONER OF REVENUE


Docket No. C270546			 	Promulgated:  
							September 6, 2005
						 	


	This is an appeal under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39, from the refusal of the appellee Commissioner of Revenue ("Commissioner") to abate corporate excises assessed against the appellant under G.L. c. 62C, § 26 and G.L. c. 63, § 32, for tax years 1996 and 1997.
	Commissioner Scharaffa heard this appeal and was joined in the decision for the appellee by Commissioners Gorton, Egan, and Rose. Chairman Foley took no part in the deliberation or decision of this appeal.
	These findings of fact and report are promulgated at the request of both the appellant and the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.

	John S. Brown, Esq., George P. Mair, Esq., Donald-Bruce Abrams, Esq., Darcy A. Ryding, Esq., and Matthew D. Schnall, Esq. for the appellant.

	Thomas W. Hammond, Esq. and Anne P. Hristov, Esq. for the appellee.

FINDINGS OF FACT AND REPORT

	There is no dispute concerning the underlying facts of this appeal.  The parties filed a Statement of Agreed Facts with accompanying exhibits, on the basis of which the Board made the following findings of fact.
During 1996 and 1997 (the "years at issue"), appellant BankBoston Corporation ("BankBoston") was the principal reporting corporation for a group of corporations that participated in the filing of a combined return for Massachusetts corporate excise purposes.  One of the corporations included in the combined returns for the years at issue, Multibank Leasing Corporation ("MLC"), was a shareholder of, and received distributions from, Matthews Street Real Estate Investment Trust, Inc. ("Matthews"), a Massachusetts corporation.  At all material times, Matthews qualified as a real estate investment trust ("REIT") under Internal Revenue Code ("IRC") §§ 856-860.  The sole legal issue raised in this appeal is whether the distributions paid to MLC by Matthews qualified for a "dividends-received" deduction in the computation of the Massachusetts corporate excise for the years at issue.
During the years at issue, Matthews held a portfolio of real estate mortgages, and its income consisted principally of interest on loans in the portfolio.  For 1996, Matthews had federal taxable income of $5,952,766.  Matthews distributed that amount to MLC and was allowed a federal dividends-paid deduction for purposes of IRC § 857(b)(2)(B) in 1996.  Although over ninety-nine percent of that amount was actually distributed to MLC in 1997, the distribution was treated as a dividend in 1996 for federal income tax purposes pursuant to IRC §§ 857(b)(8) and 858(a).  MLC was not allowed a federal dividends-received deduction pursuant to IRC §§ 857(c)(1) and 243(d)(3).
For 1997, the distributions received the same federal tax treatment under the same sections of the IRC.  Matthews had taxable income of $116,806,719 in 1997 that it distributed to MLC and was allowed a federal dividends-paid deduction.  Although approximately $300,000 of that amount was actually distributed to MLC in 1998, the entire distribution was treated as a dividend in 1997 for federal income tax purposes.  MLC was not allowed a federal dividends-received deduction in 1997.
On its Massachusetts combined corporate excise returns for the years at issue, the income earned and distributed by Matthews was not included in Matthews' net income because a dividends-paid deduction was allowable under IRC § 857(b)(2)(B), and therefore, was also an allowable deduction under G.L. c. 63, § 30(4), in computing Matthews' Massachusetts net income.  BankBoston reported the distributions Matthews paid to MLC as part of MLC's gross income for the year in which the distributions were recognized for federal income tax purposes.  However, unlike its treatment of the REIT dividends on its federal return, BankBoston then claimed a dividends-received deduction of ninety-five percent of those distributions under G.L. c. 63, § 38(a)(1).
On audit, the Commissioner disallowed the dividends-received deduction.  The Commissioner issued a Notice of Intention to Assess dated September 9, 2002, proposing additional assessments of corporate excises for the years at issue.   The Commissioner issued two Notices of Assessment ("NOAs") dated November 5, 2002, giving BankBoston notice of the Commissioner's assessment of additional corporate excise, interest, and penalties for the years at issue in the total amount of $19,670,194.  
On December 26, 2002, BankBoston filed an application for abatement on Form CA-6 for the years at issue.  By letter dated June 27, 2003, BankBoston withdrew its consent to the Commissioner's failure to act on the application for abatement within six months of its filing and the application was, therefore, deemed denied on that date pursuant to G.L. c. 58A, § 6.  On June 30, 2003, BankBoston filed its petition with this Board appealing the Commissioner's deemed denial of its application for abatement.  On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide this appeal.
The parties agree that if the Commissioner's denial of the dividends-received deduction is incorrect, BankBoston is entitled to an abatement of $445,694 of tax for 1996, $9,991,504 of tax for 1997, and $45,389 of underpayment of estimated tax penalties for 1996.  On the basis of the foregoing facts and for the reasons detailed in the following Opinion, the Board ruled that the distributions paid by Matthews to MLC were not allowable as a deduction under IRC § 857(c)(1) and, therefore, were not deductible under G.L. c. 63, § 30(4) in the computation of Massachusetts net income.  Further, because the distributions were not "considered" dividends under IRC § 857(c)(1), they were therefore not "dividends" for purposes of the Massachusetts dividends-received deduction under G.L. c. 63, § 38(a)(1).  Accordingly, the Commissioner's denial of the dividends-received deduction was correct and the Board issued a decision for the appellee in this appeal.

OPINION
The sole legal issue raised in this appeal is whether distributions paid by a REIT to its shareholder qualified for a dividends-received deduction in the computation of the combined group's corporate excises for the years at issue.  In deciding this issue, the Board is "faced with a question of statutory interpretation that arises with some frequency in the area of Massachusetts tax law, one which requires balancing the State's independent development of its individual tax code against the Legislature's consistent references to, and incorporation of, Federal tax provisions."  Commissioner of Revenue v. Franchi, 423 Mass. 817, 821-22 (1997).  Resolution of the issue depends on an analysis of two Massachusetts statutes, G.L. c. 63, §§ 30(4) and 38(a)(1), and the effect, if any, of the federal tax treatment of REIT distributions on the determination of Massachusetts net income and dividends-received deduction.  

I.	FEDERAL INCOME TAX TREATMENT OF REITs
	REITs are federally created investment vehicles established by Congress in 1960.  See IRC §§ 856-859.  The legislative history pertaining to REITs sheds light on Congress' intent in enacting the REIT provisions:
[REITs] are provided with the same general conduit treatment that is applied to mutual funds.  Therefore, if a trust meets the qualifications for REIT status, the income of the REIT which is distributed to the investors each year generally is taxed to them without being subjected to a tax at the REIT level (the REIT being subject to tax only on the income which it retains and on certain income from property which qualifies as foreclosure property).  Thus, the REIT serves as a means whereby numerous small investors can have a practical opportunity to invest in the real estate field.  This allows these smaller investors to invest in real estate assets under professional management and allows them to spread the risk of loss by the greater diversification of investment which can be secured through the means of collectively financing projects which the investors could not undertake individually.

Pub.L.No. 94-455, Real Estate Investment Trusts, reprinted in United States Code Congressional and Administrative News 3249-3250.  
	A REIT is a corporation or other entity that elects to be treated as a REIT and that meets certain requirements as to its ownership, organization, and the nature of its income and assets.  See IRC § 856(a).  A REIT's activities are generally limited to investing in real estate or loans secured by real estate and related activities.  See IRC §§ 856(a)(7) and 856(c).  In order to qualify for taxation as a REIT, the entity must pay out substantially all of its ordinary income as dividends.  See IRC § 857(a)(1).  A REIT can also pay out capital gain dividends to its shareholders.  See IRC § 857(b)(3).  The parties agree, and the Board found, that Matthews qualified as a REIT for both federal and Massachusetts purposes for the years at issue.
	A qualifying REIT and its shareholders are taxed in accordance with IRC § 857, instead of being taxed as a domestic corporation under IRC § 11.  See IRC §§ 856(a)(3) and 857(b)(1).  Under IRC § 857(b)(1), the REIT is subject to a tax computed in the same manner as the tax on corporations under IRC § 11, with the REIT's "real estate investment trust taxable income" treated as the "taxable income" referred to under § 11.  
Real estate investment trust taxable income is calculated under IRC § 857(b)(2), which provides in pertinent part: 
(2)  real estate investment trust taxable income. - For purposes of this part, the term "real estate investment trust taxable income" means the taxable income of the real estate investment trust, adjusted as follows:

	(A) The deductions for corporations provided in part VIII (except section 248) of subchapter B (section 241 and following, relating to the deduction for dividends received, etc.) shall not be allowed.

	(B) The deduction for dividends paid (as defined in section 561) shall be allowed, but shall be computed without regard to that portion of such deduction which is attributable to the amount excluded under subparagraph (D).

Accordingly, in calculating its income subject to federal tax, the REIT must include in its taxable income any dividends it receives (IRC § 857(b)(2)(A)), but it is entitled to adjust its taxable income by deducting the dividends it pays to its shareholders (IRC § 857(b)(2)(B)).  The parties agree, and the Board found, that Matthews qualified for taxation as a REIT for the years at issue and properly claimed a dividends-paid deduction for federal income tax purposes for its distributions to MLC.
	Just as a REIT is not allowed a deduction for dividends it receives in computing its federal taxable income (IRC § 857(b)(2)(A)), a REIT corporate shareholder that receives a dividend from a REIT is also prohibited from claiming a federal dividends-received deduction.  See IRC § 857(c)(1), which provides, in pertinent part:
For purposes of section 243 (relating to deductions for dividends received by corporations), a dividend received from a real estate investment trust which meets the requirements of this part [IRC §§ 856-859] shall not be considered a dividend.

	Moreover, IRC § 243, which provides for a deduction for dividends received by a corporation, explicitly provides that "[a]ny dividend received from a real estate investment trust which, for the taxable year of the trust in which the dividend is paid, qualifies under part II of subchapter M (section 856 and following) shall not be treated as a dividend."  IRC § 243(d)(3).  The parties agree, and the Board found, that the amounts distributed by Matthews to MLC did not qualify for a federal dividends-received deduction for the years at issue.
	By operation of IRC § 857, the "conduit treatment" of REIT federal income taxation was achieved for the years at issue:  Matthews was not subject to federal tax on the income it earned and distributed under IRC § 857(b)(2)(B), but its shareholder, MLC, was taxed on the distributions it received from Matthews because no  dividends-received deduction was allowable under IRC § 857(c)(1).  Accordingly, the income earned and distributed by Matthews was subject to federal tax at the shareholder level, but not at the entity level.

II.	MASSACHUSETTS TAX TREATMENT OF REITs
	During the tax years at issue, no Massachusetts statute specifically addressed the taxation of REITs and their shareholders.  Accordingly, the taxation of REITs and their corporate shareholders was governed by the IRC and the same provisions of G.L. c. 63 applicable to other corporations subject to the Massachusetts corporate excise.
G.L. c. 63, § 30(4) provided during the years at issue that Massachusetts "net income" for purposes of the corporate excise was a corporation's "gross income," as defined under the IRC, less the "deductions, but not credits, allowable under" the IRC.  In addition, § 30(4) specifically provided that no deduction for "dividends received" was allowed in computing a corporation's net income.  Accordingly, the federal dividends-received deduction under IRC § 243 is not an allowable deduction in the computation of the Massachusetts net income of a corporation.  See Commissioner of Revenue v. Northeast Petroleum Corp., 401 Mass. 44, 46 (1987)("Dividends are specifically included in the Massachusetts net income of a business corporation."); Dow Chemical Co. v. Commissioner of Revenue, 378 Mass. 254, 258-59 (1979)("Net income is obtained by subtracting from gross income the deductions allowed by the Federal Code, except that the Federal deduction for dividends received (confined to 85% of the dividends received from domestic corporations, Code § 243) is not taken over as such in the State law.").  
However, at all material times, Massachusetts law provided corporations with a dividends-received deduction when adjusting "net income" to compute "taxable net income."  G.L. c. 63, § 38(a)(1) provided in pertinent part that:
(a) Net income as defined in section thirty of this chapter adjusted as follows shall constitute taxable net income:

(1) Ninety-five per cent of dividends, exclusive of distributions in liquidation, included therein shall be deducted . . . .

	
There is no dispute that the distributions paid by Matthews to MLC were included in MLC's net income.  The question remains, however, whether the distributions paid by Matthews to MLC constitute "dividends" for purposes of the Massachusetts dividends-received deduction under § 38(a)(1).

III.	DEDUCTIBILITY OF SUBJECT DISTRIBUTIONS UNDER § 38(a)(1)
A.	Commissioner's Position
The parties differ not only on the issue of whether the REIT distributions qualify for a Massachusetts dividends-received deduction, but also on what statute governs the analysis.  The Commissioner maintains that the analysis begins and ends with § 30(4).  Under § 30(4), only deductions "allowable" under the IRC may be deducted from Massachusetts gross income in the computation of a corporation's Massachusetts net income.  Because, under IRC § 857(c)(1), no deduction for dividends received from a REIT is "allowable" under the IRC, the Commissioner argues that there can be no deduction for REIT dividends when computing net income under § 30(4).  In the Commissioner's view, § 38 (a)(1) is inapplicable because § 30(4) prohibits any deduction not allowed by the IRC.
Moreover, the Commissioner argues that Massachusetts has adopted the federal scheme for taxation of REITs and their shareholders.  In the Commissioner's view, allowing a REIT shareholder to claim a Massachusetts dividends-received deduction for REIT dividends would frustrate the purpose behind the REIT taxation scheme of providing one level of taxation, at the shareholder level, and would allow all but five percent of REIT income to totally escape state taxation.
B.	BankBoston's Position
BankBoston's response to the Commissioner's analysis is essentially two-fold.  First, as will be detailed more fully below, the Supreme Judicial Court has ruled that a Massachusetts dividends-received deduction was allowable under § 38(a)(1), even though the dividend was from a foreign subsidiary and, therefore, not an "allowable" deduction under IRC § 243.  See Dow, 378 Mass. at 261.  Second, because no dividends received, regardless of their source, may be deducted from gross income to arrive at net income under § 30(4), and because § 38(a)(1) specifically addresses the issue of dividends received as a deduction from net income, BankBoston maintains that the issue cannot be governed exclusively by § 30(4), with no consideration of § 38(a)(1).
BankBoston argues that since dividends received by a corporation, regardless of their source, are not deductible in computing net income under § 30(4), it is of no consequence that a deduction for REIT dividends received is not "allowable" under the IRC.  BankBoston maintains that all dividends, other than the specific exceptions found in § 38(a)(1), are deductible in computing Massachusetts taxable net income under § 38(a)(1). Accordingly, in BankBoston's view, because the distributions received by MLC from Matthews are "dividends" for federal and Massachusetts purposes, and REIT dividends are not among the specific exceptions listed under § 38 (a)(1), the distributions are therefore deductible in the computation of Massachusetts taxable income under § 38(a)(1).
In support of its position, BankBoston argues that, since 1933, the computation of net income under § 30(4) and its predecessors has expressly excluded any dividends-received deduction allowed to corporations under the IRC.  See St. 1933, c. 327, § 3.  Instead, Massachusetts adopted a separate dividends-received deduction in 1966.  See St. 1966, c. 698, § 58.  BankBoston asserts that, as originally enacted in 1966, § 38(a)(1) allowed for an unqualified deduction for all dividends received by a corporation. The categories of dividends excluded from the dividend-received deduction were the product of amendments to § 38(a)(1) between 1971 and 1988.
BankBoston therefore argues that by removing dividends received from the federal deductions allowable under § 30(4) and enacting a separate deduction for dividends received under § 38(a)(1), the Legislature intended to create a Massachusetts-specific deduction for dividends received that is not affected by the federal denial of the deduction for REIT distributions.  Accordingly, BankBoston maintains that because the dividends received by MLC from Matthews are not among the specific exceptions in § 38(a)(1), Matthews is entitled to deduct them in the computation of its Massachusetts taxable income.
C.	Board's Analysis
Although there is a certain logic to BankBoston's analysis, there is a significant sticking point: a "dividend" for purposes of § 38(a)(1) is a distribution that is a dividend under the IRC, but the IRC treats REIT distributions as dividends for some purposes while explicitly providing that they are not to be "considered" or "treated" as dividends for purposes of the dividends-received deduction.  See IRC §§ 857(c)(1) ("[f]or purposes of section 243 . . . a dividend received from a real estate investment trust . . . shall not be considered a dividend") and 243(d)(3) ("[a]ny dividend received from a real estate investment trust . . . shall not be treated as a dividend").
At the outset, it is important to note that "Federal tax concepts are not always dispositive of the interpretation of Massachusetts corporate excise statutes. See Rohrobough, Inc. v. Commissioner of Revenue, 385 Mass. 830, 832 (1982)(stating that gross income on federal return will not always be same for state tax purposes); Weston Marketing Corp. v. Commissioner of Revenue, 16 Mass. App. Tax Bd. Rep. 76, 80 (1994); T.H.E. Inv. Corp. v. Commissioner of Revenue, 8 Mass. App. Tax Bd. Rep. 12, 15 (1986)."  FMR Corp. v. Commissioner of Revenue, 441 Mass. 810, 818 (2004).  See also Parker Affiliated Cos. v. Department of Revenue, 382 Mass. 256, 261 (1981)("The consistent inclusion of a Federal tax benchmark has not restrained a Legislature from carving out peculiar variations to further the State's tax policies").
In particular, courts and the Board are cautious when applying federal tax concepts to deductions available under Massachusetts statutes.  "While Federal law often guides Massachusetts as to recognition of income, see General Mills, Inc. v. Commissioner of Revenue, [440 Mass. 154] at 171; Johnson v. Department of Revenue, 387 Mass. 59, 61 (1982), the same is not necessarily true for authorizations of deductions.  See Macy's East, Inc. v. Commissioner of Revenue, [441 Mass.] 797, 803 (2004), citing Bill DeLuca Enters., Inc. v. Commissioner of Revenue, 431 Mass. 314, 325 (2000), and Farrell Enters., Inc. v. Commissioner of Revenue, [46 Mass. App. Ct. 564] at 572."  FMR, 441 Mass at 818-19.  Accordingly, a critical issue to be determined is whether the Massachusetts tax law incorporates the federal treatment of REIT dividends or "carve[s] out a peculiar variation to further the State's tax policy." Parker Affiliated Cos. 382 Mass. at 261.
In determining whether a distribution is a "dividend" for purposes of the corporate excise, courts and this Board have looked to the IRC definition of "dividend."  In Northeast Petroleum Corp. v. Commissioner of Revenue, 7 Mass. App. Tax Bd. Rep. 59, 61 (1986), the Board held that the IRC "definition of dividends applies to 'dividends' as that term is used in G.L. c. 63."  The Board reached that conclusion because: (a) it was appropriate to have conformity between the definition of "gross income" in § 30, which relies on the provisions of the IRC, and the definition of particular items included in gross income, such as dividends; (b) § 38(a)(1) itself specifically refers to dividends from corporate trusts, which were otherwise governed by a definition in G.L. c. 62, § 1(e) that explicitly relied on the definition of "dividends" found in the IRC; and, (c) "dividend" has acquired a "peculiar meaning in law" due to the IRC's role as the fundamental source of tax law for the Commonwealth.  Id. at 61-62.  
On appeal, the court specifically affirmed the Board's reasoning.  Northeast Petroleum, 401 Mass. at 46-47, 49-50.  The court noted that although Chapter 63 does not define dividend, G.L. c. 62, § 1(e) defines a dividend as "any item of Federal gross income which is a dividend under [§ 316] of the [IRC] or which is treated as a dividend under any other provision of the [IRC]."  Id. at 47.  Section 316 of the IRC defines the term "dividend" as "any distribution of property made by a corporation to its shareholders . . . out of" current or accumulated earnings and profits.  Because the court ruled that the Legislature had adopted the federal definition of the term "dividend," and the liquidating distribution at issue was "out of earnings and profits," it ruled that the distribution was a deductible dividend for purposes of § 38(a)(1). Id. at 49.
In Dow Chemical Co. v. Commissioner of Revenue, 378 Mass. 254 (1979), the court addressed whether certain deemed distributions from foreign subsidiaries that were included in the federal gross income of United States corporations, known as "Subpart F income" and "foreign tax gross-up" (together "deemed distributions"), constituted dividends for purposes of § 38(a)(1).  Noting a "legislative intent, running through many State tax provisions, to assure uniformity between State and Federal taxation," the court first ruled that the deemed distributions, although not actually received by the domestic corporation, were includible in Massachusetts gross income, because they were includible in federal gross income. Id. at 258.  
In ruling that the deemed distributions also qualified for the dividends-received deduction under § 38(a)(1), the court focused on the statutory purpose for the deduction --preventing multiple taxation of corporate income:
[Deemed distribution] income must therefore be included in Massachusetts gross income.  But that income is included in gross income only because it is treated federally as if it had been currently distributed; it should be similarly treated under State law and deductible as a dividend.  Disallowance of a dividend deduction for undistributed [deemed distributions] would in fact prevent the taxpayer from ever receiving a deduction for that income since it could not be included in income when actually distributed; the disallowance would thus subvert the statutory purpose of preventing multiple taxation of corporate income.

Dow, 378 Mass. at 256.  See also Commissioner of Revenue v. Shafner, 392 Mass. 256, 261 (1984)("We agree with the board that the taxation at both the trust level and shareholder level is not a pure double taxation in that the same party is taxed twice on the same proceeds.  But it is tantamount to double taxation where the same proceeds are being taxed twice.  Such a result should be avoided.").
Although the foregoing cases analyzed whether a certain distribution was a "dividend" for purposes of § 38(a)(1), none addressed the situation, present here, of an explicit IRC provision that denies dividend treatment of a distribution for federal purposes.  Although in Dow, the court ruled that the dividends deemed to have been paid were deductible under § 38(a)(1) even though under IRC § 243, only dividends from domestic corporations qualified for a federal dividends-paid deduction, neither IRC § 243 nor any other IRC provision expressly provided that the distributions at issue in Dow "shall not be treated as a dividend" as does IRC § 857(c)(1) with respect to dividends received from a REIT. 
The difference between the silence of § 243 on foreign dividend treatment, and the explicit denial of dividend treatment for distributions received from REITs under IRC § 857(c)(1), is significant.  First, although corporations may deduct only dividends received from a domestic corporation under § 243, they receive a credit for foreign taxes paid by their foreign subsidiaries, on the theory that the domestic shareholder is "deemed to have paid" the foreign tax through a reduction in the amount of foreign income available for distribution to the shareholder in the form of dividends.  See IRC § 902; Dow, 378 Mass. at 263.  The Massachusetts corporate excise, by allowing a deduction for dividends received from foreign subsidiaries "and thus preventing the possibility of triple taxation [at the foreign subsidiary, domestic parent, and parent's shareholders levels], performs the same general function in the State scheme as does the foreign tax credit in the Federal scheme."  Dow, 378 Mass. at 261.  The court therefore looked to the overall federal taxation scheme to assist it in construing the parameters of the Massachusetts dividends-received deduction under G.L. c. 63, § 38(a)(1).
Moreover, there is no explicit language in § 243 or elsewhere in the IRC which prohibits dividend treatment for distributions from foreign subsidiaries; they are treated as dividends, but not deductible dividends, under § 243 because they generate a tax credit for the shareholder. Id. at 260 ("Subpart F income is included in gross income only because it is treated as a dividend.").  In contrast, IRC §§ 857(c)(1) and 243(d) provide that dividends received from a REIT are not "considered" or "treated" as dividends for purposes of the dividends-received deduction available to the REIT shareholder.  Accordingly, unlike dividends from foreign subsidiaries, which are still treated as dividends but are not deductible federally because they generate a tax credit, REIT dividends in the hands of REIT subsidiaries are expressly not considered dividends for purposes of the dividends-received deduction pursuant to IRC § 857(c)(1).
Where, as in the case of the taxation of REITs and their shareholders, federal law creates a specific taxing regimen, Massachusetts courts and this Board have generally adopted federal interpretations in construing Massachusetts taxing statutes.  See Franchi, 423 Mass. at 823 ("This court has consistently adhered to the meaning of Federal tax language incorporated into our tax law where no contrary legislative intent is apparent."); Grady v. Commissioner of Revenue, 421 Mass. 374, 380, (quoting B.W. Co. v. State Tax Commission, 370 Mass. 18, 22-23 (1976) ("if the State income tax law has incorporated Federal income tax provisions, those provisions should be interpreted as they are interpreted for Federal income tax purposes. . . . We should be reluctant to infer the existence of a State legislative intent which would require us to disregard the meaning established under Federal tax law of unambiguous, common statutory language.")); see also Dow, 378 Mass. at 261 (court noted a "symmetry" between the functions of the state's dividends-received deduction as applied to dividends from foreign subsidiaries and the federal foreign tax credit).
A review of the purposes behind both the federal REIT provisions and § 38(a)(1) reinforces the conclusion that the Massachusetts treatment of REIT dividends should follow established federal principles.  The IRC provisions concerning REIT taxation, which allow the REIT a dividends-paid deduction (IRC § 857(b)(2)(B))and deny the shareholder a dividends-received deduction (IRC § 857(c)(1)), are designed to provide for one level of federal tax, at the shareholder level, of income earned and distributed by the REIT.  
The § 38(a)(1) "dividend deduction serves to ensure that the income may be taxed only to the original earner (the subsidiary) and the parent's shareholders" and not to the parent corporation.  Dow, 378 Mass. at 268.  However, in the case of a REIT, the "original earner" escapes Massachusetts, as well as federal, tax because it is entitled to a dividends-paid deduction under IRC § 857(b)(2)(B) in the computation of its federal taxable income and Massachusetts net income.  Allowing a dividends-received deduction to the shareholder of the REIT would, contrary to the federal model, allow both the REIT and the REIT shareholder to totally escape taxation on all but five percent of the distribution.  Such an interpretation would lead to an illogical and unwarranted result, where only part of § 857, rather than all or none of its provisions, would be applicable to Massachusetts tax law.  In fact, the logical extension of BankBoston's argument that the denial of the dividends-received deduction under IRC § 857(c)(1) is not applicable for Massachusetts corporate excise purposes is that the dividends-paid deduction under IRC § 857(b)(2)(B) would also be inapplicable.  The interpretation urged by BankBoston would allow taxpayers to pick and choose from among the provisions of IRC § 857, to derive the benefit of the dividends-paid deduction under § 857(b)(2)(B) while escaping the corresponding denial of the dividends-received deduction under § 857(c)(1).  Accordingly, adoption of BankBoston's argument would create a result contrary to the purposes of both the REIT taxing provisions under the IRC and § 38(a)(1).  No reasonable inference may be drawn that the Legislature intended this result. 
In fact, reading §§ 30(4) and 38(a)(1) together evidences a clear legislative intent to deny deductions that are not allowable under federal law.  It is particularly appropriate to read these sections together, since both address the issue of dividends and each references the other: where "two or more statutes relate to the same subject matter, they should be construed together so as to constitute a harmonious whole consistent with the legislative purpose."  FMR, 441 Mass. at 819, (quoting Board of Educ. v. Assessors of Worcester, 368 Mass. 511, 513-514).  Accordingly, the court in FMR ruled that, where two statutes relate to the same subject matter, interpretation of one of the statutes "must take place in light of the legislative intent" of the other.  Id.
By the express terms of § 30(4), gross income is modified to arrive at net income by deducting only those items which are deductible under the IRC.  The clear legislative intent of this section is to limit Massachusetts deductions to only those deductions that would also qualify for a federal deduction under the IRC.  Reading the dividends-received deduction under § 38(a)(1) in light of this legislative intent supports the conclusion that a REIT dividend, which under the IRC is neither an allowable deduction nor even considered or treated as a dividend, does not qualify for the dividends-received deduction under § 38(a)(1).  There simply is nothing in §§ 30(4) or 38(a)(1) that suggests a departure from the federal tax treatment of REITs and their shareholders.
Given that a REIT dividend is not deductible by the recipient under § 30(4) by virtue of the IRC's denial of a federal deduction, and that a REIT dividend is not treated as a deductible dividend under § 38(a)(1) because it is not considered or treated as a dividend under the IRC, there is no Massachusetts statute that supports BankBoston's position that the REIT dividends received by MLC are deductible for Massachusetts corporate excise purposes.  "Deductions are to a large extent a matter of legislative grace.  The burden is on a taxpayer seeking a deduction to point to a particular statutory provision which authorizes the deduction."  Drapkin v. Commissioner of Revenue, 420 Mass. 333, 343 (1995).  Statutes "granting exemptions from taxation are therefore to be strictly construed."  South Boston Savings Bank v. Commissioner of Revenue, 418 Mass. 695, 698 (1994).  In the absence of unambiguous statutory language to the contrary, the Board is "reluctant to infer the existence of a State legislative intent which would require it to disregard the meaning established under Federal tax law of unambiguous, common statutory language."  B.W. Co. v. State Tax Commission, 370 Mass. 18, 22-23 (1976).  
There is no language in § 30(4), § 38(a)(1) or elsewhere in Chapter 63 that provides for the deduction by the recipient of REIT dividends.  Further, there is no Massachusetts statutory language which suggests that the Legislature intended a departure from the federal treatment of REIT dividends.  In fact, Massachusetts has adopted the federal definition of "dividend" (Northeast Petroleum, 401 Mass. at 49) and has generally followed federal interpretations of specific federal taxing regimens in the absence of a contrary Massachusetts legislative intent (Franchi, 423 Mass. at 823).  Accordingly, the Board ruled that the Massachusetts treatment of dividends received by a REIT shareholder should be the same as the federal model:  the dividends received from a REIT are not deductible for purposes of calculating net income under § 30(4) and they are not deductible "dividends" for purposes of the dividends-received deduction under § 38(a)(1).
2003 AMENDMENTS TO § 30(4)
The foregoing analysis and rulings are based on the relevant statutory language applicable for the years at issue.  However, because the parties devoted significant attention to the issue of whether subsequent amendments to § 30(4) should be considered in deciding this appeal, the Board addresses the issue.  For the following reasons, the Board ruled that subsequent amendments are not relevant to the proper interpretation of the applicable statutes for the years at issue.
On two occasions in 2003, the Legislature amended the definition of "net income" in § 30(4) in a manner that affected the operation of the dividends-received deduction in § 38(a)(1).  Initially, § 30(4) was amended to provide that a "dividend received from a real estate investment trust . . . shall not be: (i) treated as a dividend; and (ii) included as part of the dividends received deduction otherwise available to the taxpayer under" § 38(a)(1). See St. 2003, c. 4, § 12.  The amendment was made retroactive for tax years beginning on or after December 31, 1999.  See St. 2003, c. 4, § 88. The effective date, as well as the following provision concerning legislative intent, was included in the first set of legislative changes at the request of the Commissioner: 
Sections 12 and 14 are intended to clarify existing laws with respect to distributions received by businesses subject to tax under chapter 63 of the General Laws.  The laws have been interpreted by some taxpayers to substantially exempt from taxation real estate investment trust distributions received by such businesses.  By the enactment of this law, it is the statement of the general court's intent that, for the purposes of those subject to an excise under said chapter 63, such distributions, in conformity with section 243(d) of the Internal Revenue Code, shall not be treated as dividends, have never been exempt or partially exempt and are subject to taxation.

St. 2003, c. 4, § 71.
	Later the same year, the Legislature made further changes to the definition in § 30(4).  See St. 2003, c. 143, § 5.  Under this amendment, the earlier changes in the treatment of REIT dividends were extended to apply to any dividends received "directly or indirectly" from a REIT.  Id.  This change was made prospective only, applicable to tax years beginning on or after January 1, 2004.  See St. 2003, c. 143, § 9.  
	The Commissioner argues that the 2003 legislation was a "clarification" of the Legislature's intent concerning REIT distributions.  That intent was, consistent with the Commissioner's position in this appeal, that REIT dividends are to be treated in the same manner as under the IRC.  In support of this argument, the Commissioner cites Swift v. AutoZone, Inc., 441 Mass. 443 (2004) for the proposition that recent legislative changes can be indicative of the Legislature's long-standing intent.  See also Fitz-Inn Auto Parks, Inc. v. Commissioner of Labor & Indus., 350 Mass. 39 (1965).  
	While acknowledging that the Legislature was free to adopt prospective "changes" to the treatment of REITs, BankBoston maintains that the 2003 amendments "transparently attempt," at the urging of the Commissioner, to "dictate the outcome of litigation between taxpayers and the Commissioner over the meaning of prior law." BankBoston Brief at 29.  In addition to arguing that the legislation infringes on the role of the judiciary, BankBoston maintains that the language in St. 2003, c. 4, § 71 concerning the legislative intent of prior legislation --REIT distributions "have never been exempt or partially exempt" -- should be disregarded.
The Board agrees with BankBoston on this point.  Courts "give subsequent [legislative] views on [prior legislation] 'very little, if any, significance.'"  Polednak v. Rent Control Bd. Of Cambridge, 397 Mass. 854, 860 (1986) (quoting United States v. Southwestern Cable Co., 392 U.S. 157, 170 (1968)); see also Massachusetts Commission Against Discrimination v. Liberty Mutual Ins. Co., 371 Mass. 186, 194 (1976)("[T]he views of a subsequent [Legislature] form a hazardous basis for inferring the intent of an earlier one")(quoting United States v. Price,  361 U.S. 304, 313 (1960)); Devlin v. Commissioner of Correction, 364 Mass. 435, 443 (1973)(questioning whether intentions of a Legislature in one session "were material to the intention of the next prior Legislature"); Selectmen of Pembroke v. R. & P. Realty Corp., 348 Mass. 120, 125 (1964)("1960 meaning of the words does not control the construction of the 1958 statute.  The construction of § 81U, as amended through St. 1958, c. 377, § 1, must be made in its statutory context.").
	In Grady v. Commissioner of Revenue, 421 Mass. 374 (1995), the court rejected an argument similar to the one advanced by the Commissioner in this appeal.  For the years at issue in Grady, G.L. c. 62, § 1(e) required that, in order for a distribution to a Massachusetts taxpayer to be considered a "dividend," the distribution had to constitute an "item of federal gross income."  Id. at 377.  Because the distributions at issue were from a Subchapter S corporation, the distributions were not treated as items of federal gross income under Subchapter S of the IRC.  Id.  Accordingly, the court ruled that the distributions were not dividends for Massachusetts income tax purposes.  Id. at 378.
	After the years at issue, the Legislature amended § 1(e) by explicitly addressing dividends from Subchapter S corporations and providing that distributions from such corporations would be dividends if they would otherwise qualify as items of federal gross income but for the provisions of Subchapter S. Id. at 378.  In rejecting the Commissioner's argument that this amendment was persuasive evidence of the meaning of the statute prior to the amendment, the court stated:
We do not agree with the commissioner that this revision constituted simply a continuation of existing law.  The revision specifically focuses on Subchapter S corporations, which the prior definition did not do.  The revision is intended in part to remedy disputes like the one in issue for tax years subsequent to 1988, and it does not control the outcome in this case.

Id. at 378.
	Similarly, the 2003 legislative amendments appear to have been specifically intended to address and resolve the issue in dispute in this appeal.  While the amendments may resolve this issue for tax years beginning with the effective date of the amendments, they do not control or guide the outcome of this appeal.

IV.	BANKBOSTON'S RELIANCE ON DOR FORMS AND INSTRUCTIONS
	As a ground separate from its statutory interpretation analysis, BankBoston argues that it is entitled to an abatement of the subject assessments because the Commissioner is prohibited from making an assessment that is contrary to tax returns and instructions issued to taxpayers regarding the treatment of dividends.  BankBoston maintains that nowhere on the relevant Massachusetts tax form or the accompanying instructions is there any mention of a requirement to deduct REIT dividends from those dividends eligible for the dividends-received deduction.  Instead, taxpayers are instructed to: enter "Total dividends (U.S. Form 1120, Schedule C, line 19)" on Line 1 of Schedule E-1;   subtract from Line 1 dividends in three categories disallowed for deduction under § 38(a)(1) (dividends from corporate trusts, certain DISCs, and corporations in which the taxpayer owned less than fifteen percent of the voting stock) and enter the result on Line 6; and multiply the amount shown on Line 6 by .95 to arrive at the dividends-received deduction on Line 7.
	BankBoston cites Commissioner of Revenue v. Baybank Middlesex, 421 Mass. 736 (1996) for the proposition that the Commissioner cannot make an assessment that constitutes a "retroactive application of a change in policy when the department [of revenue] itself made a clear policy statement to the contrary."  Id. at 743.  The "clear policy statement" referred to in Baybank was an instruction sheet for the Massachusetts bank excise issued in 1945.  The instruction sheet, issued shortly after a change in the federal tax law concerning the tax treatment of tax-exempt bond premiums, expressly provided for a clear deviationfrom the new federal law.  Id. at 738.  The court found that "there is nothing in the record to indicate that the commissioner issued any additional instructions with respect to bank excise tax returns after" the 1945 issuance of the instruction sheet and before the 1987 assessments at issue, which reversed the treatment provided for in the instructions.  Id. at 739.  
	BankBoston's reliance on Baybank is misplaced.  First, there is no "clear policy statement" embodied in the corporate excise returns or instructions concerning the treatment of REIT dividends.  Unlike the explicit direction given on the bank excise instruction sheet in Baybank, the returns and instructions are simply silent on the issue of REIT dividends.  BankBoston cannot argue that the Commissioner changed his policy by making the subject assessments when the Commissioner had articulated no policy in his instructions or forms concerning REIT dividends prior to the assessments.
	Further, unlike Baybank, there is no evidence in the record of this appeal of a change in policy by the Commissioner.  There is nothing in the record to suggest that the Commissioner had purposefully allowed dividends-received deductions claimed by corporate recipients of REIT dividends over a substantial period of time, or that the taxpayer or other REIT shareholders had claimed such deductions, prior to the years at issue.  See Baybank, 421 Mass. at 739 ("the commissioner and all interested parties followed the 1945 Instruction Sheet from 1945 until the issuance of the notices of assessment in 1987").  Accordingly, unlike the taxpayer in Baybank, BankBoston failed to prove that the Commissioner's assessments represented a change in his long-standing administrative practice.  
	Moreover, neither Baybank nor any other case stands for the proposition that the Commissioner is bound by a form or instruction that is contrary to law.  Even assuming that the Commissioner's form and instructions are incomplete or simply wrong in using total federal dividends, including REIT dividends, as a starting point for calculation of the Massachusetts dividends-received deduction with no explicit denial of the deduction for REIT dividends, administrative interpretations that are in conflict with the underlying statute are not afforded weight.  See Massachusetts Hospital Association, Inc. v. Department of Medical Security, 412 Mass. 340, 346 ("[a]n incorrect interpretation of a statute . . . is not entitled to deference.") In addition, the Commissioner recognizes in his own Regulation that: "Nothing contained in tax forms and instructions supersedes, alters or otherwise affects provisions of the Massachusetts General Laws, Massachusetts regulations, court decisions, rulings or any other source of the law."  830 CMR 62C.3.1.
In its decision in Baybank, the Board ruled that the interpretation contained in the 1945 instruction sheet was a proper interpretation of the Massachusetts bank excise statute and that the Commissioner had to abide by his policy of over forty years as stated in the instruction sheet.  Baybank Middlesex v. Commissioner of Revenue, 16 Mass. App. Tax Bd. Rep. 92, 106-107.  Although the court's affirmance of the Board on the long-standing policy ground obviated the need to address the correctness of the 1945 interpretation, the court did note that the instructions appeared to be consistent with the bank excise statute.  Id.  Accordingly, Baybank cannot be read to mean that the Commissioner is bound to adhere to a public policy statement, in the form of tax forms and instructions, that is contrary to law.
Finally, administrative interpretations of statutes are given weight only when the statute in question is ambiguous:  "Undue weight, of course, is not to be given to administrative interpretations of statutes which are not ambiguous."  Wellington v. Commissioner of Corporations and Taxation, 359 Mass. 448, 452 (1971); Assessors of Holyoke v. State Tax Commission, 355 Mass. 223, 243 (1969).  Given the explicit denial of a dividends-received deduction under IRC § 857(c) and the absence of any indication that the Legislature intended to depart from the federal treatment of REIT dividends, the appellant has not shown that the dividends-received deduction under § 38(a)(1) is ambiguous.  Therefore, any "interpretation" inferable from the Commissioner's failure to specifically address the deductibility of REIT dividends on tax forms and instructions is not entitled to weight.  
On the basis of the foregoing, the Board ruled that because REIT dividends are not treated as "dividends" for purposes of § 38(a)(1), the Commissioner is not precluded from making the subject assessment, even if his silence on the corporate excise return and instructions could be construed to be a "policy" or an "interpretation" that such dividends are deductible.

CONCLUSION
REITs are federally created investment vehicles subject to a specific taxing regimen under the IRC that subjects REIT income to tax at the shareholder level, but not at the entity level.  Prior to 2003, Massachusetts did not specifically address the taxation of REITs and their shareholders.  Massachusetts had, however, adopted the federal definition of "dividend" and had adhered to the interpretation of federal tax language incorporated into state law where no contrary intent was apparent.  There can be no reasonable inference that the Legislature intended to depart from the federal treatment of REIT dividends and allow ninety-five percent of REIT income to totally escape taxation.  
On the basis of the foregoing, the Board ruled that REIT dividends should be treated in the same manner for Massachusetts corporate excise purposes as they are for federal tax purposes.  Denial of a deduction under § 30(4) and a dividends-received deduction under § 38(a)(4) for REIT dividends is consistent with the IRC treatment of such dividends and with the underlying purpose of imposing tax at the shareholder level, but not at the entity level.  
The Board further ruled that the Commissioner's corporate excise return and accompanying instructions for the years at issue did not constitute a "clear policy statement" that REIT dividends were deductible under § 38(a)(1).  Further, BankBoston failed to prove that there was a change in the Commissioner's long-standing administrative practice or that the statutes at issue were ambiguous.  Finally, even if the Commissioner's failure to explicitly state that REIT dividends were not deductible could be considered a policy statement, it would have been contrary to governing statutes and, therefore, not controlling.
Accordingly, for all of the foregoing reasons, the Board issued a decision for the appellee in this appeal.
				THE APPELLATE TAX BOARD

By:	__________________________		
Frank J. Scharaffa, Commissioner


_____________________________		
Donald E. Gorton, III, Commissioner


_____________________________		
Nancy T. Egan, Commissioner


_____________________________		
				James D. Rose, Commissioner

A true copy,


Attest:_____________________________
  Assistant Clerk of the Board

 IRC § 857(b)(8) was renumbered as IRC § 857(b)(9) by the Tax Relief Extension Act of 1999, P.L. 106-170.
 Although the total balance due is the same on each of the NOAs, the first NOA contained a "truncation" of BankBoston's 1997 assessment of additional tax liability: $337,576 rather than the $10,337,576 shown on the corrected NOA.  The parties agree that the additional tax assessment for 1997 is $10,337,576.
 The additional assessment included tax liability of $12,802,266 and interest accrued of $6,867,927, totaling $19,670,193.  The "total amount due" on the NOA of $19,670,194, $1.00 more than the total of the additional tax assessed and interest accrued shown on the NOA, appears to be a computational error.
 As discussed more fully later in this Opinion, the Legislature on two separate occasions in 2003 addressed the corporate excise treatment of REITs to specifically provide that dividends received from REITs do not qualify for a Massachusetts dividends-received deduction.  See St. 2003, c. 4, § 14 and St. 2003, c. 143, §§ 4 and 5.  These amendments were made effective for tax years ending on or after December 31, 1999 (St. 2003, c. 4, § 88) and tax years beginning on or after January 1, 2004 (St. 2003, c. 143, § 9). Because the tax years at issue in the present appeal are 1996 and 1997, these amendments have no direct bearing on this appeal.
 No dividends-received deduction is allowed for "distributions in complete liquidation" or "dividends from or on account of the ownership" of: shares in a corporate trust; certain deemed and actual distributions from DISCs; or, any class of stock if the corporation owns less than fifteen percent of the voting stock of the paying corporation.  See G.L. c. 63, § 38(a)(1).  The distributions at issue in this appeal do not fall within these exceptions to the dividends-received deduction available under § 38(a)(1).
 IRC § 243(a) allows a deduction for dividends received "from a domestic corporation."
 A February 4, 2003 letter from the Commissioner to Representative Paul Casey, the House Chairman of the Joint Committee on Taxation, explaining the rationale for the proposed effective date and suggesting the statement of legislative intent was included as an addendum to BankBoston's brief.
 Because the shareholder was taxed on the Subchapter S corporation's income when earned by the corporation, shareholders generally did not pay federal tax on distributions from the corporation.  See Grady, 421 Mass. at 375-376.
 Although BankBoston relies on the Schedule E-1 form to make its point that taxpayers are not instructed to deduct REIT dividends in the calculation of the Massachusetts dividends-received deduction, BankBoston itself, at least on its 1996 corporate excise return, did not enter any amounts on Schedule E-1. 
 The text of the instruction sheet stated: "In determining the gain or loss on sale or maturity of [tax exempt] bonds, the basis for determining such gain or loss will be without deduction for amortizable [bond] premium."  The basis treatment described in the instruction sheet is directly contrary to the federal treatment prescribed by the 1942 amendment to the IRC.  See Baybank, 421 Mass. at 738.

ATB 2005-450