Massachusetts Net Worth "True Debt" Litigation Moves Forward—Oral Argument Held, Awaiting Decision

With oral argument and briefing complete, the Massachusetts Department of Revenue's authority to increase the net worth component of a taxpayer's corporate excise using its "true debt" analysis is under review by the Appeals Court in National Grid Holdings, Inc. et. al. v. Commissioner.  The appeal should be of particular interest to taxpayers because, in addition to reviewing whether the taxpayers are entitled to interest deductions from the income tax base, it would be the first Appellate Court decision that involves a true debt attack on a taxpayer's net worth tax base since Overnite Trans. Co. v. Commissioner, 54 Mass.App.Ct. 180 (2002).  

By way of background, the Department has been issuing assessments that increase a taxpayer's net worth subject to the corporate excise by denying a deduction for intercompany debt.  The Department asserts that the intercompany obligation is not "true debt", and therefore, cannot be deducted as a liability from the taxpayer's