Posts Tagged: Massachusetts law

Massachusetts Guidance Regarding Opportunity Zone Investments

TIR 19-7: Massachusetts Treatment of Investments in Qualified Opportunity Zones

Massachusetts Guidance Regarding Opportunity Zone Investments

Authors: Joshua Caswell of Howland Evangelista Kohlenberg LLP

The Tax Cuts and Jobs Act amended the Internal Revenue Code (the “Code”) to add Sections 1400Z-1 and 1400Z-2 (collectively, “Subchapter Z”) related to Opportunity Zones. Subchapter Z was designed to spur investment in designated distressed communities throughout the country by granting investors preferential tax treatment. Section 1400Z-1 includes definitional and procedural rules for designating Opportunity Zones. Section 1400Z-2 allows taxpayers to elect to receive certain federal income tax benefits to the extent that those taxpayers timely invest eligible gains into Opportunity Zones through a Qualified Opportunity Fund (“QOF”), an investment vehicle organized as a corporation or partnership for the purpose of investing in qualified opportunity zones.

Generally, investments in QOFs come with three main tax benefits: (1) investors can defer tax on capital gains timely invested into a QOF until no later than December 31, 2026; (2) investors that hold the QOF investment for five or seven years upon the expiration of the deferral period can receive a 10% or 15% reduction on their deferred capital gains tax bill; and (3) investors that sell the QOF investment after holding the investment for at least 10 years can receive the added benefit of paying no tax on any post-acquisition realized appreciation in the QOF investment.

The Massachusetts Department of Revenue (“DOR”) issued a Technical Information Release on June 17, 2019 (the “TIR”) intended to inform taxpayers and practitioners of the DOR’s official position on the treatment of QOF investments. TIR 19-7.

The TIR provides that because the Massachusetts personal income tax rules (including partnership tax rules) are based upon the Internal Revenue Code as amended on January 1, 2005 and not upon the current code, individuals and partnerships that invest in QOFs will not be able to take advantage of the tax benefits enumerated under Subchapter Z. For personal income tax purposes, a taxpayer who elects to defer gains under Subchapter Z must recognize such gains for Massachusetts income tax purposes in the year of the sale or exchange giving rise to such gains. Additionally, the basis adjustment rules under Subchapter Z do not apply in calculating future gains that must be recognized (for Massachusetts income tax purposes) upon the sale or exchange of a QOF investment.

The TIR also provides that because Massachusetts generally conforms to the Internal Revenue Code as currently in effect for corporations, for corporate excise tax purposes taxpayers who elect to defer capital gains under Subchapter Z will also defer such gains for Massachusetts purposes. Similarly, the federal basis adjustment rules under Subchapter Z will apply to corporations for Massachusetts purposes.

T&E Litigation Update – Cheney v. Flood; Johnson v. Kindred Healthcare; Rockingham County Nursing Home v. Harnois

Author: Mark E. Swirbalus, Esq., Goulston & Storrs, P.C.

Cheney v. Flood

In the recent Rule 1:28 decision Cheney v. Flood, 2014 Mass. App. Unpub. LEXIS 154 (February 7, 2014), the Appeals Court reviewed the dismissal of a malpractice claim brought against an attorney on the grounds that the attorney should have known that the decedent – the attorney’s former client and plaintiff’s stepfather – wanted the plaintiff and her children to be his only beneficiaries.

Although the plaintiff did not properly appeal the dismissal of the malpractice claim, the Appeals Court noted that had she done so, the decision in Miller v. Mooney, 431 Mass. 57, 61 (2000), would have been dispositive of her claim.  In Miller, the Supreme Judicial Court held that the surviving relatives of a decedent could not bring claims against a lawyer based on allegedly erroneous statements the lawyer made to one of the relatives concerning the terms of the decedent’s will because they could not establish that they had an attorney-client relationship with the lawyer. Miller, 431 Mass. at 61 (holding that the duty of care owed by an attorney arises only from an attorney-client relationship).

The complaint also asserted a claim for quantum meruit seeking payment from the decedent’s estate for services that the plaintiff and her family provided during the last years of his life.  However, the plaintiff could not establish any express agreement with the decedent for such payment and instead only offered evidence that she assumed she would be a beneficiary of the estate because she “always hoped that he would eventually have a little bit to pay [her] back.”

The Appeals Court distinguished the plaintiff’s case from situations in which a decedent had expressly agreed to make someone a beneficiary in exchange for the performance of services prior to the decedent’s death (e.g., a wealthy bachelor who promised to leave a plaintiff one-half of his estate in exchange for services).  In affirming the lower court’s dismissal of the plaintiff’s claim, the Court quoted Congregation Kadimah Toras-Moshe v. DeLeo, 405 Mass. 365, 366-367 (1989) for the proposition that “moral obligation is not legal obligation [and a] hope or expectation, even though well founded, is not equivalent to either legal detriment or reliance.”

Johnson v. Kindred Healthcare

In Johnson v. Kindred Healthcare, Inc., Case No. SJC-11335, 2014 Mass. LEXIS 7 (January 13, 2014), the Supreme Judicial Court answered the question of first impression in Massachusetts of whether a health care agent’s agreement with a health care facility to arbitrate disputes arising from the principal’s stay at the facility constitutes a “health care decision” binding on the principal pursuant to the health care proxy statute, G.L. c. 201D, § 5.

The brief background is that the administrators of the decedent’s estate brought a wrongful death action in Superior Court against a nursing home and related entities and individuals.  In response, the defendants sought to enforce the mandatory arbitration provision in the nursing home agreement.  The decedent’s health care agent (his wife) had signed the agreement on his behalf.

The estate argued that the health care agent’s entering into the agreement, and specifically the mandatory arbitration provision, was not binding because it was not a “health care decision” as that term is defined and used in the health care proxy statute.  The Court agreed, explaining that the Massachusetts Legislature intended to distinguish between a health care proxy, which limits an agent’s decision-making authority on behalf of an incapacitated person to health care decisions, and a durable power of attorney, guardianship or conservatorship, each of which authorizes much broader decision-making power on behalf of an incompetent person.  “Unlike a health care proxy, a durable power of attorney can authorize an agent to make decisions affecting the principal’s business, estate, finances, and legal relationships in a variety of contexts unrelated to health care.”

In support of this conclusion, which comports with the majority view in other jurisdictions that have considered similar issues, the Court pointed to the history of the health care proxy statute, where the Legislature considered but rejected an alternative bill that would have combined the roles of health care agent and attorney-in-fact, and noted that the statutory scheme ultimately enacted by the Legislature maintains a distinction between these fiduciary roles.  The Court also reasoned that if it were to define “health care decisions” more broadly, then many decisions made by a health care agent would override the more expansive powers allocated to an attorney-in-fact, guardian or conservator.

Rockingham County Nursing Home v. Harnois

In Rockingham County Nursing Home v. Harnois, Civil Action No. 11-11057-JGD, 2014 U.S. Dist. LEXIS 3042 (January 10, 2014), the United States District Court for the District of Massachusetts addressed a nursing home’s fraudulent transfer claim against the trustee of an irrevocable trust.  The nursing home alleged that the settlor transferred to the trust her primary residence, which was also her primary asset, with the intent of avoiding her payment obligation to the nursing home, and that she did not receive equivalent value in return.  The nursing home also claimed that the trust would be unjustly enriched if it were permitted to keep the property.

The Court’s decision includes a lengthy discussion of the facts and certain procedural matters arising from the nursing home’s motion for partial summary judgment and the trust’s motion for leave to amend its answer to assert the statute of limitations as an affirmative defense.  Of particular note is the Court’s finding that the nursing home’s fraudulent conveyance claim is barred by the statute of limitations.  The Court explained that the Massachusetts Uniform Fraudulent Transfers Act (G.L. c. 109A, §§ 1, et seq.) provides that a claim must be brought within four years following the transfer or obligation, or within one year after the transfer or obligation was or could have been reasonably discovered by the claimant, and that a claim based on constructive fraud must be brought within four years after the transfer or obligation, regardless of the claimant’s knowledge.  Here, the Court found the nursing home’s claim to be time-barred, because the claim was based on constructive fraud and more than four years had passed.  Accordingly, the Court did not address the substance of the allegedly fraudulent transfer to the trust.

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