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Montana Administrative Register Notice 42-2-820 No. 5   03/11/2010    
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BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the adoption of New Rule I, amendment of ARM 42.15.107, 42.15.108, 42.15.109, 42.15.110, 42.15.112, 42.15.119, 42.15.120, 42.15.204, 42.15.205, 42.15.206, 42.15.213, 42.15.214, 42.15.215, 42.15.216, 42.15.217, 42.15.218, 42.15.219, 42.15.220, 42.15.221, 42.15.222, 42.15.301, 42.15.303, 42.15.310, 42.15.312, 42.15.315, 42.15.316, 42.15.317, 42.15.318, 42.15.319, 42.15.320, 42.15.321, 42.15.322, 42.15.325, 42.15.326, 42.15.327, 42.15.328, 42.15.401, 42.15.402, 42.15.403, 42.15.407, 42.15.414, 42.15.427, 42.15.510, 42.15.523, 42.15.524, 42.15.525, 42.15.526, 42.15.601, 42.15.602, 42.15.603, 42.15.604, 42.15.605, 42.15.802, 42.15.803, 42.15.804, 42.15.805, 42.15.806, 42.15.807, 42.15.903, 42.15.906, relating to individual income taxes

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NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION AND AMENDMENT

 

TO:  All Concerned Persons

 

1.  On March 31, 2010, at 1:00 p.m., a public hearing will be held in the Reception Area (Third Floor) Conference Room of the Sam W. Mitchell Building, at Helena, Montana, to consider the adoption and amendment of the above-stated rules.

Individuals planning to attend the hearing shall enter the building through the east doors of the Sam W. Mitchell Building, 125 North Roberts, Helena, Montana.

 

2.  The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice.  If you require an accommodation, contact the Department of Revenue no later than 5:00 p.m., March 22, 2010, to advise us of the nature of the accommodation that you need.  Please contact Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail canderson@mt.gov.

 

3.  The proposed new rule does not replace or modify any section currently found in the Administrative Rules of Montana.  The proposed new rule provides as follows:

 

            NEW RULE I  APPROVAL OF INNOCENT SPOUSE RELIEF

            (1)  Reasonable grounds for granting innocent spouse relief must be demonstrated in writing.

            (2)  Relief may not be granted in excess of the relief granted by the IRS.

            (3)  The following requirements must be met, before the department may consider an application for innocent spouse relief:

            (a)  the innocent spouse relief applicant must make a written request stating the reasons and specific periods for which the relief is requested;

            (b)  the innocent spouse relief applicant must have received Innocent Spouse Relief under section 6015 of the IRC from the IRS to be eligible for consideration by Montana; and

            (c)  the innocent spouse relief applicant must provide the Department of Revenue with complete copies of all correspondence to and from the IRS, and documentation that relief has been granted by the IRS for those periods.

            (4)  The innocent spouse relief applicant shall provide a copy of any court order stating that the spouse or former spouse is responsible for paying the taxes.

            (5)  The taxpayer shall include on the application any other documents and information demonstrating the reasons why relief should be granted, as required in 15-30-2646, MCA.

            (6)  Upon request, the innocent spouse relief applicant requesting relief shall provide any additional information necessary to compute each spouse's separate Montana tax liability.

            (7)  When the review has been completed, the applicant will be advised of the decision of the department, and given the option to appeal if they disagree with the decision.

            (8)  The provisions of this rule only apply to individual income tax liabilities arising from a joint Montana return for tax years beginning after December 31, 2002.

 

            AUTH:  15-30-2620, 15-30-2646, MCA

            IMP:  15-30-2646, MCA

 

REASONABLE NECESSITY:  The department is proposing to adopt New Rule I in order to implement the innocent spouse relief provision established by Senate Bill 418, (Ch. 470, L. 2009), which was passed by the 2009 Montana Legislature.

 

   4.  The rules proposed to be amended provide as follows, stricken matter interlined, new matter underlined:

 

               42.15.107  DEFINITIONS  The following definitions apply to rules found in this subchapter:

   (1) remains the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-101, 15-30-2101, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.107 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.108  DETERMINING TAX LIABILITY  (1) through (7) remain the same.

(8)  Unless otherwise specified below, rules that address itemized deductions are found in ARM Title 42, chapter 15, subchapter 5.  As provided in 15-30-123, 15-30-2133, MCA, deductions for expenses associated with the excluded income described in (6) are not allowed.  Additional rules related to itemized deductions include:

(a)  a rule describing the calculation of itemized deductions that are limited to a percent of Montana adjusted gross income;

(b)  a rule describing how certain itemized deductions must be computed when a married taxpayer filing a joint federal income tax return files a separate Montana return; and

(c)  a rule describing calculation of the Montana net operating loss.

(9) remains the same.

(10)  The tax rates set forth in 15-30-103, 15-30-2103, MCA, are applied to Montana taxable income.  Tax brackets are adjusted annually for inflation.  The Montana tax liability of a nonresident or part-year resident is determined by multiplying the calculated tax by the ratio of Montana source income to total income.

(11) remains the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-101, 15-30-102, 15-30-103, 15-30-105, 15-30-111, 15-30-112, 15-30-121, 15-30-137, 15-30-2101, 15-30-2102, 15-30-2103, 15-30-2104, 15-30-2110, 15-30-2114, 15-30-2131, 15-30-2153, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.108 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.109  RESIDENCY  (1)  As provided in 15-30-101, 15-30-2101, MCA, an individual may be a resident for Montana individual income tax purposes if the individual is domiciled in the state or maintains a permanent place of abode in the state.  Section 1-1-215, MCA, sets forth rules for determining residency, and "domiciled" is defined in ARM 42.2.304.  Whether an individual is a Montana resident for Montana income tax purposes is determined in light of all facts and circumstances.

(2) and (3) remain the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-101, 15-30-2101, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.109 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.110  TAXATION OF NONRESIDENTS  (1) remains the same.

(2)  Part-year residents and nonresidents must include all Montana source income on Schedule III IV of Form 2.  Montana source income is defined in 15-30-101, 15-30-2101, MCA.

            (3) and (4) remain the same.

 

            AUTH:  15-30-105, 15-30-2104, MCA

            IMP: 15-30-101, 15-30-103, 15-30-105, 15-30-111, 15-30-112, 15-30-121, 15-30-122, 15-30-131, 15-30-132, 15-30-135, 15-30-136, 15-30-137, 15-30-138, 15-30-2101, 15-30-2103, 15-30-2104, 15-30-2110, 15-30-2111, 15-30-2114, 15-30-2131, 15-30-2132, 15-30-2151, 15-30-2152, 15-30-2153, 15-30-2154, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.110 to correct the schedule number, which is necessary for part-year residents and nonresidents.  Part-year residents and nonresidents now complete Schedule IV instead of Schedule III when filing their Montana tax returns.  The department is also proposing to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.112  NONRESIDENT MILITARY PERSONNEL  (1) through (4) remain the same.

            (5)  An example of how the tax liability would be calculated is:

            (a)  A nonresident serviceperson and their nonresident spouse who are filing a joint return have the following income:

 

Military compensation

$

40,000

Spouse's - Montana source income

$

30,000

Interest income - Joint

$

500

Dividend income - Joint

$

1,000

Total Income

$

71,500

 

            (b)  The exempt military compensation is a subtraction that reduces Montana adjusted gross income:

 

Gross income:

$

71,000 71,500

Less: Exempt military compensation

($

40,000)

Montana adjusted gross income

$

31,500

 

            (c)  The Montana personal and dependent exemptions and either the standard deduction or itemized deductions are subtracted from Montana adjusted gross income to determine Montana taxable income:

 

Montana adjusted gross income

$

31,500

Less: Deduction and exemptions

($

17,340)

Taxable income

$

14,160

 

            (d)  The tax, determined on the taxable income, is multiplied by the ratio of Montana source income to total income from all sources except the exempt military compensation:

 

            Montana source income                                                       $ 30,000

            Total income from all sources except

military compensation ($30,000 + 500 + 1,000) =                        $ 31,500

            Ratio $30,000/$31,500 =                                                          .9523

 

            (e)  If the tax determined on the taxable income were $1,000, the taxpayers' Montana tax liability would be $952, the Montana tax liability of $1,000 multiplied by .9523, the ratio of $30,000 to $31,500.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-101, 15-30-2101, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.112 to update the name of the schedule used to report Montana source income and to correct the misstatement of gross income in (5)(b) from $71,000 to $71,500.  The gross income should correlate to the total income defined in (5)(a).  The department is also proposing to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.119  ALTERNATIVE TAX  (1)  Effective with taxable years beginning on and after January 1, 1971, a A nonresident taxpayer whose only activities in Montana consist of making sales and do not include owning or renting real or tangible personal property and whose dollar volume of gross sales made in Montana during the taxable year does not exceed $100,000, may elect to pay a tax of 1/2% on the gross volume of sales made in Montana during the taxable year.  Such tax is in lieu of the tax based upon net income as described in 15-30-105 15-30-2101(1), MCA.

(2) remains the same.

 

AUTH: 15-30-305, 15-30-2104, 15-30-2620, MCA

IMP: 15-30-105, 15-30-2104, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.119 to eliminate the outdated reference to the enactment of the alternative tax as a part of general rule cleanup.  The department is also proposing to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.120  INTENT  (1)  For purposes of individual income taxes, the department adopts by reference the rules contained in ARM Title 42, chapter 26 – Corporate Multistate Activities, subchapters 1, 2, 4, 6, 7, 8, and 9 1- General Provisions, as it existed on December 21, 2001; 2 – Income Allocation and Apportionment, as they existed on December 27, 2002; 4 – Special Rules Related to Installment Sales, as they existed on December 21, 2001; 6 - Railroads, as they existed on December 21, 2001; 7- Trucking, as they existed on December 21, 2001; 8 - Airlines, as they existed on December 21, 2001; 9 - Special Rules for Construction Contracts, as they existed on December 21, 2001; 10 - Publishing Companies - Apportionment, as they existed on April 23, 2004; and 11- Television and Radio Broadcasting, as they existed on December 27, 2002 April 23, 2004.

            (2) remains the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-1-601, 15-30-131, 15-30-2111, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.120 to include the references to rules being adopted by reference contained in ARM 42, chapter 26.  Those rules became effective on various dates and it is necessary to indicate the effective date that is applicable to this adoption by reference action.  The names of the subchapters are also provided so that this administrative rule provides more information for the user.  The department is also adding reference to subchapters 10 and 11, neither of which was available when the rule was first written.  This will provide filing guidance to taxpayers in these circumstances as the department has done in the allocation and apportionment rules previously cited.  The department is also proposing to amend ARM 42.15.120 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.204  DEFINITIONS  (1) remains the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-116, 15-30-2117, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.204 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.205  REFUNDS OF FEDERAL INCOME TAX  (1)  If a taxpayer claims an itemized deduction for federal income taxes paid under 15-30-121 15-30-2131(1)(b), MCA, in one tax period and subsequently receives a refund of those taxes paid in another tax period, the amount of refund that is taxable under 15-30-111 15-30-2110(1)(b), MCA, is computed as though the taxpayer had paid the proper amount of federal tax and claimed the appropriate deduction during the period.  A taxpayer whose deduction for federal income taxes was limited under 15-30-121 15-30-2131(1)(b), MCA, for tax years beginning after December 31, 2004, would only report the portion of their refund that reduces their tax paid below the applicable limitation.

            (2)  The following examples illustrate the application of this rule:

            (a)  Example 1 - Taxpayer A pays $15,000 in federal income taxes in 2005 year one, has no other itemized deductions, files as 'single' on his Montana state income tax return, and receives a federal refund in 2006 year two of $8,000.  If the taxpayer had paid the proper tax during 2005 year one, his federal taxes paid would have been $7,000.  Since his Montana deduction for federal taxes is limited to $5,000 in both situations, none of the refund would be included in Montana taxable income.

            (b)  Example 2 - Married taxpayers B and C pay $20,000 in federal income taxes in 2005 year one, have no other itemized deductions, file as 'joint' on their Montana state income tax return, and receive a federal refund in 2006 year two of $12,500.  If the taxpayers had paid the proper tax during 2005 year one, their federal taxes paid would have been $7,500.  Since their Montana deduction for federal income taxes was limited to $10,000, only $2,500 of their federal refund would be included in Montana taxable income.

(c)  Example 3 - Taxpayer D pays $6,500 in federal income taxes in 2005 year one, has other itemized deductions totaling $4,500, files as 'single' on her Montana state income tax return, and receives a federal refund in 2006 year two of $4,100.  If the taxpayer had paid the proper tax during 2005 year one, her federal taxes paid would have been $2,400.  Since her Montana deduction for federal income taxes was limited to $5,000, only $2,600 of her federal refund would be included in Montana taxable income.

            (d)  Married taxpayers filing a joint federal return who are allowed a deduction for interest paid for a qualified education loan under section 221 of the Internal Revenue Code, 26 U.S.C. 221, and who file separate Montana income tax returns may claim the same amount of the deduction that is allowed on the federal return. The deduction may be split equally on each return or in proportion to each taxpayer's share of federal adjusted gross income.  This provision does not affect any interest paid during tax years beginning before January 1, 2007, for which the deduction was not allowed on the Montana tax return.

(3) through (4)(a) remain the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-111, 15-30-121, 15-30-2110, 15-30-2131, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.15.205 in order to keep the examples in (2) current and to correct the internal statutes contained in the rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.206  ADDITIONS AND SUBTRACTIONS FOR MARRIED TAXPAYERS FILING SEPARATE RETURNS  (1)  Except as provided in (2) and (3), married taxpayers who file a joint federal return but separate Montana returns must compute their taxable income using the federal rules for married taxpayers filing separately.  Items clearly attributable to one spouse must be claimed by that spouse.  An item not clearly attributable to one spouse must be divided equally unless the spouses enter into a binding written agreement providing a different division.

            (2) through (2)(e) remain the same.

            (3)  For tax years beginning on or after January 1, 2009, married taxpayers filing a joint federal return and separate Montana returns may elect to report their capital gains and losses using one of the following options:

            (a)  The couple may elect to allocate the net gain or loss reported on page 1 (line 10 on Form 1040A or line 13 on Form 1040) of their joint federal return based on their ownership percentage.  For example, if the couple reports a net capital gain of $10,000 on their joint federal return and they owned the asset equally, each spouse shall report $5,000 on their separate Montana returns.  If only one spouse owned the asset, that spouse shall report $10,000 on the separate return.  If the couple reports a net capital loss of $3,000 on their joint federal return and they owned the asset equally, each spouse shall report $1,500 on their separate Montana returns.  If only one spouse owned the asset, that spouse shall report the $3,000 on their return and the other spouse shall report $0.

            (b)  The couple may elect to track their capital gains and losses individually and separately. If a federal net capital gain or loss is comprised of the capital gains attributable to one spouse offset by capital losses attributable to the other spouse, each spouse would report their separately calculated gain or loss.  The maximum net capital loss deduction either spouse reporting a loss may claim would be limited to $1,500.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-111, 15-30-2110, MCA

 

Reasonable Necessity:  The department is proposing amendments to ARM 42.15.206 because of taxpayer questions that the department has encountered regarding how to report capital gains, it is proposing rules describing some helpful options for how to file.  The department is also amending the rule to coordinate 42.15.206 with the changes to the capital gain credit proposed to ARM 42.4.502.  The department is also proposing to amend ARM 42.15.206 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.213  SMALL BUSINESS CORPORATION DIVIDEND AND CAPITAL GAIN EXCLUSION  (1) remains the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-33-103, 15-30-2103, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.213 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.214  RESIDENT MILITARY SALARY EXCLUSION  (1) through (3) remain the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-101, 15-30-116, 15-30-2101, 15-30-2117, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.214 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.215  SENIOR INTEREST INCOME EXCLUSION  (1) through (5) remain the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-111, 15-30-2110, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.215 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.216  EXCLUSION OF INTEREST ON OBLIGATIONS OF UNITED STATES GOVERNMENT AND U.S. POSSESSIONS  (1) and (2) remain the same.

            (3)  United States obligations that are exempt include:

(a)  series EE, F, G, and H savings bonds;

(b)  U.S. treasury bills;

(c)  U.S. government notes; and

(d)  U.S. government certificates.

 

AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-111, 15-30-2110, MCA

 

REASONABLE NECESSITY:  The department is proposing amendments to ARM 42.15.216 in order update the list of examples of United States obligations that are exempt from Montana income tax.  The department is proposing to amend ARM 42.15.216 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.217  DISABILITY INCOME EXCLUSION  (1) through (4) remain the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-111, 15-30-2110, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.217 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.218  CAPITAL GAIN EXCLUSION FOR PRE-1987 SALES  (1) and (2) remain the same.

            (3)  The capital gain from the sale or exchange of a capital asset is the sales price or fair market value less the taxpayers taxpayer's adjusted basis in the asset as determined for federal purposes prior to December 31, 1986.

            (4) through (7) remain the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-110, 15-30-111, 15-30-131, 15-30-2110, 15-30-2111, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.218 to correct the grammar in (3) and to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.219  PENSION AND ANNUITY INCOME EXCLUSION  (1)  For tax years beginning before January 1, 2010, Tthe pension and annuity exclusion is limited to the lesser of the pension and annuity income received or $3,600 for a single person or married couple where only one person receives pension or annuity income.

            (a)  The exclusion in (1) is reduced $2 for every $1 over federal adjusted gross income of $30,000.

            (b)  For tax years beginning after December 31, 2009, by November 1 of each year the department will multiply the exclusion amount in (1) and the federal adjusted gross income amount in (1)(a) by the inflation figure for the taxable year as prescribed in section 15-30-2110(14), MCA.

            (2)  When married taxpayers file a joint return and each receives pension and annuity income, their individual exclusion is limited to the lesser of each person's retirement income or $3,600 the amount allowed in (1).  The total of both individuals' exclusion is phased out at the rate described in (1).

            (3)  When married taxpayers file separately, each spouse's exclusion and phase-out are computed independently and a spouse's exclusion begins to be phased out only when his or her federal adjusted gross income exceeds $30,000 the amount allowed in (1)(a).  Examples for tax years beginning before January 1, 2010, are:

            (a)  Jane, a single taxpayer has federal adjusted gross income of $20,000 which is made up of $5,000 of pension income and $15,000 of other income.  Her pension and annuity exclusion for Montana purposes is $3,600.

            (b)  Frank and Edith, a married couple, file a joint income tax return and both receive pension and annuity income. Frank's taxable pension included in federal adjusted gross income is $5,600.  Edith's taxable pension included in federal adjusted gross income is $2,000.  Their combined federal adjusted gross income is $25,000.  Their Montana pension and annuity exclusion is $5,600 (the maximum $3,600 for Frank and the full taxable amount of $2,000 for Edith).  Even though their combined federal adjusted gross income is below $30,000, Edith is not entitled to a $3,600 pension exclusion as the exclusion is limited to her taxable pension of $2,000.

            (c)  John, a single taxpayer, has federal adjusted gross income of $31,000.  This consists of $8,000 of taxable pension income and $24,000 of other income.  John's Montana pension exclusion is $1,600.  ($3,600 - (($31,000 - $30,000) x 2)).

            (d)  John and Barbara, a married couple, file a joint income tax return and both report federal taxable pension income.  John's federal taxable pension is $5,600 and Barbara's federal taxable pension income is $3,000.  Their combined federal adjusted gross income is $33,000.  Their combined Montana pension and annuity exclusion is $600.  ($6,600 - (($33,000 - $30,000) x 2)).

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP:  15-30-111, 15-30-2110, MCA

 

REASONABLE NECESSITY:  The department is proposing amendments to ARM 42.15.219 in order to implement the changes made by House Bill 315 (Ch. 382, L. 2009), which was passed in the 2009 Legislature.  The department is also proposing to amend the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.220  EXEMPTION OF CERTAIN INCOME OF ENROLLED TRIBAL MEMBERS  (1) through (4) remain the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-101, 15-30-2101, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.220 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.221  DEPENDENT CHILD UNEARNED INCOME EXCLUSION  (1) remains the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-111, 15-30-2110, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.221 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.222  RAILROAD RETIREMENT AND SOCIAL SECURITY BENEFIT EXCLUSION  (1) and (2) remain the same.

(3)  Federal modified adjusted gross income, determined as provided in section 86 of the IRC, must be:

(a)  increased by the additions to federal adjusted gross income provided in 15-30-111 15-30-2110, MCA, and any other additions to Montana taxable income provided in Title 15, MCA; and

(b)  decreased by the reductions to federal adjusted gross income provided in 15-30-111 15-30-2110, MCA, other than tax-exempt interest on United States obligations or interest on any state or county municipal bonds.  In determining the taxable and excludable portions of social security benefits, a married person filing separately who has filed a joint federal income tax return must use one-half of the federal base and adjusted base amounts.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-111, 15-30-2110, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.222 to correct the internal statutes contained in the rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.301  WHO MUST FILE RETURNS  (1) through (3) remain the same.

 

AUTH: 15-1-201, 15-30-305, 15-30-2620, 15-31-501, MCA

IMP: 15-30-142, 15-30-143, 15-30-1102, 15-30-1111, 15-30-1112, 15-30-2602, 15-30-2603, 15-30-3302, 15-30-3311, 15-30-3312, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.301 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.303  RETURNS FOR THOSE UNABLE TO MAKE OWN RETURN

(1) and (2) remain the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-142, 15-30-2602, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.303 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.310  DEFINITIONS  The following definitions apply to rules found in this subchapter:

            (1)  "Injured spouse" means a taxpayer who does not owe a child support obligation, but who has reported income on a joint return with a taxpayer who does owe a past due child support obligation.

            (2)  "Innocent spouse relief applicant" means a taxpayer who has filed joint federal and Montana tax returns for the same tax year, has obtained relief from a joint and several federal tax liability under section 6015 of the IRC, and is requesting relief from a joint and several Montana income tax liability.

(2)(3)  "Obligated spouse" means a taxpayer who is liable for a past due child support obligation.

 

            AUTH:  15-30-2104, 15-30-2620, 17-41-110, MCA

            IMP:  15-30-2602, 17-4-105, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.15.310 in order to help implement the innocent spouse relief provision of Senate Bill 418, (Ch. 470, L. 2009), which was passed by the 2009 Montana Legislature by providing the definition of "innocent spouse relief applicant".  The department is also proposing to amend the authority and implementing statutes to include statutes that apply to Title 15, chapter 30, MCA.

 

42.15.312  ACCEPTANCE OF REPRODUCED TAX FORMS  (1)  Subject to the following conditions and except as provided in (2), the department will accept paper reproductions copies of official tax return forms and other supporting documents.  These forms must be:

(a)  facsimiles of the official form;

(b)  on paper the quality and weight of the official form;

(c)  produced on paper which may readily and permanently be written upon and stamped with ink; and

(d)(c)  of the same size as the official form.

(2)  The department will not accept reproductions of scannable payment coupons.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-144, 15-30-2604, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.312 to improve taxpayer ease and convenience by removing an unnecessary requirement regarding reproduced tax forms.  The department is also proposing to amend ARM 42.15.312 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.315  ORIGINAL AND AMENDED RETURNS  (1) through (4) remain the same.

(5)  Late file and late pay penalties are assessed as required under 15-1-216 and 15-30-321 15-30-2641, MCA, on the correct amount due on the original return.

(6) remains the same.

(7)  If required by 15-1-216 and 15-30-321, 15-30-2641, MCA, interest will be calculated on the original return.  If an amendment is made to the original return, interest will be calculated as required under 15-30-149 15-30-2609 or 15-30-142, 15-30-2602, MCA, as of the due date in (1).

(8) through (10) remain the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-1-216, 15-30-142, 15-30-149, 15-30-241, 15-30-321, 15-30-2512, 15-30-2602, 15-30-2609, 15-30-2641, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.315 to correct the internal statutes contained in the rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.316  EXTENSIONS AND ESTIMATED PAYMENTS  (1)  For tax years beginning after December 31, 2004, and before January 1, 2010, Aa four-month extension of time to file an individual income tax return is automatically allowed a taxpayer if the following conditions are met on or before the due date of the return:

(a)  the taxpayer has applied for a corresponding an extension of time to file their federal income tax return; and

(b)  the taxpayer has paid either through withholding, estimated tax payments, or a combination of withholding and estimated payments, either of the following:

(i)  90% of their current year's income tax liability; or

(ii)  100% of their prior year's income tax liability.

(2) remains the same.

(3)  If a taxpayer does not meet either of the required payment thresholds as required by 15-30-144, 15-30-2604, MCA, late pay and late file penalties will be applied as provided in 15-1-216, MCA.

(4)  Underpayment interest, as provided in 15-30-241, 15-30-2512, MCA, accrues to the original due date of the return.  Interest from and after the original due date of the return accrues as provided in 15-1-216, MCA, whether or not the time for filing the return has been extended.

(5) remains the same.

            (6)  An additional two month extension is automatically allowed if the taxpayer has applied for a corresponding an extension of time to file their federal income tax return and made the payments required for the initial extension described in (1).

            (7)  For tax years beginning on or after January 1, 2010, a six-month extension of time to file an individual income tax return is automatically allowed a taxpayer if the conditions of (1)(b) are met on or before the due date of the return.

(7)(8)  Taxpayers who are either first time filers, or have a zero or negative taxable income for the previous year, are considered to have paid 100% of the previous year's tax for purposes of meeting the threshold requirements in 15-30-144, 15-30-2604, MCA.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP:  15-1-201, 15-1-216, 15-30-144, 15-30-331, 15-30-2604, 15-30-2651, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.15.316 in order to implement the provisions of Senate Bill 418, (Ch. 470, L. 2009), which was passed by the 2009 Montana Legislature.  The department is also amending ARM 42.15.316 to conform to current practice for extensions to file.  Current Montana law allows separate four-month and two-month extensions with an outdated reference to similar federal extensions.  Beginning with the 2005 tax year, federal law allows one six-month extension.  The amendments to the rule clarify that the requirement for both the four-month and two-month Montana extensions in effect for tax years 2009 and earlier is met if the taxpayer applied for the six-month federal extension.  The department is also proposing the amendment of the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.317  FILING DATE  (1) remains the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-204, 15-30-207, 15-30-2504, 15-30-2507, 39-71-2503, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.317 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.318  MONTANA NET OPERATING LOSSES  (1)  Net operating losses must be determined as provided in section 172 of the IRC.  A taxpayer has a Montana net operating loss if their Montana taxable income, recomputed with the adjustments provided in section 172(d) of the IRC, is less than zero.  In recomputing Montana taxable income, the following must be added back:

(a)  any net operating loss deduction;

            (b)  any deduction for personal and dependent exemptions if the taxpayer is an individual, and the exemption provided in 15-30-136 15-30-2152, MCA, if the taxpayer is an estate or trust;

            (c)  any gain excluded from the sale or exchange of qualified small business stock pursuant to section 1202 of the IRC;

(d)  the amount by which a deduction for losses from sales or exchanges of capital assets exceeds the amount includable for gains from sales or exchanges of capital assets; and

            (e)  the amount by which nonbusiness deductions exceed nonbusiness income.

(2) through (5) remain the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-117, 15-30-110, 15-30-2119, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.318 to correct the internal statute contained in the rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.319  DATE AND PLACE OF FILING AND PAYMENT  (1)  The due date for filing an individual income tax return and payment of the tax due is the 15th day of the 4th month following close of the tax year and payment of the tax is the due date prescribed for filing the return.

            (2)  A return may be filed by personal delivery, mail and, in some cases, electronically or by telephone.

(a)  A return may be filed by personal delivery to:

the Montana Department of Revenue,

3rd Floor, Sam W. Mitchell Building,

125 North Roberts,

Helena, Montana. 59620

(b)  A return may be filed by mailing it postage prepaid by U.S. Postal Service First-Class or Priority mail to:

            Department of Revenue

            P.O. Box 5805

            Helena, Montana 59604-5805

            (i)  If a return is mailed as provided in this section, on or before the due date, and received by the department, the return is considered filed on the date mailed.  A taxpayer is responsible for establishing the date a return is mailed.

            (c)  The rules for filing a return electronically or by telephone are located in ARM Title 42, chapter 5, subchapter 2.

            (3)  Every taxpayer must compute their tax liability and pay the balance of any tax due in full on or before the prescribed due date as stated in 15-30-142, 15-30-2602, MCA.  If the balance due is less than $1, payment is not required.  If full payment of the balance due is not made on or before the prescribed due date, interest and penalty accrue from the prescribed due date of the return until paid as provided in 15-1-216, MCA.

            (a)  If tax is paid by check or money order, the check or money order should be made payable to the "Montana Department of Revenue."

            (b)  The rules for paying a tax electronically are located in ARM Title 42, chapter 5, subchapter 2.

            (c)  The rules for paying a tax by credit card are located in ARM Title 42, chapter 5, subchapter 2.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-142, 15-30-144, 15-30-2602, 15-30-2604, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.15.319 to clarify the language regarding the due dates for filing a tax return and payment of any tax due. In addition, amendments are proposed because there is no longer the capability to file tax returns telephonically, to correct the address format, and to correct the internal statutes contained in the rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

     42.15.320  DEFICIENCY NOTICES AND PAYMENTS  (1) and (2) remain the same.

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-142, 15-30-144, 15-30-2602, 15-30-2604, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.320 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.321  JOINT RETURNS  (1) through (3) remain the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-142, 15-30-2602, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.321 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.322  SEPARATE RETURNS FOR MARRIED TAXPAYERS  (1) through (6) remain the same

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-111, 15-30-142, 15-30-2110, 15-30-2602, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.322 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.325  FAILURE TO FURNISH REQUESTED INFORMATION OR FILE A DELINQUENT RETURN  (1) through (3) remain the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-145, 15-30-2605, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.325 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.326  REQUEST FOR ADJUSTMENT OF JOINT RETURN  (1) through (3) remain the same.

            (4)  The provisions of this rule do not apply to a taxpayer requesting innocent spouse relief as provided under 15-30-2646, MCA.  The rules for innocent spouse relief are located in [NEW RULE I].

 

            AUTH: 15-1-201, 15-30-305, 15-30-2620, 17-4-110, MCA

            IMP: 15-1-211, 15-30-142, 15-30-2602, 17-4-105, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.15.326 to coordinate the language in it with the provisions of New Rule I.  The department is also proposing to amend the rule to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.327  STATEMENT REQUIRED FOR ADJUSTMENT OF JOINT RETURN  (1)  The written request for an adjustment of the joint tax return referenced in ARM 42.15.326, shall include a statement entitled "injured spouse statement."  Before any adjustment can be considered, Tthis statement must:

            (a)  contain the identical social security numbers of both spouses in the same order as they appear on the original joint tax return;

            (b)  clearly indicate how any income, itemized deductions, exemptions, credits, and tax payments (as originally claimed) should be divided between the spouses;

            (c)  be signed by both spouses; and

            (d)  be mailed to:

 the Department of Revenue,

P.O. Box 5805,

Helena, Montana 59604-5805, before any adjustment can be made.

(2) and (3) remain the same.

 

            AUTH: 15-1-201, 15-30-305, 15-30-2620, 17-4-110, MCA

            IMP: 15-1-211, 15-30-142, 15-30-2602, 17-4-105, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.327 to correct the address format and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.328  FORM OF CLAIM FOR REFUND  (1) remains the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-149, 15-30-2609, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.328 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.401  DEFINITIONS  The following definitions apply to rules found in this subchapter:

(1) remains the same.

(2)  "Dependent" has the same meaning as "dependent" for purposes of determining dependent exemptions for federal income tax purposes, except as follows:

(a)  The list of individuals in 15-30-113, 15-30-2115, MCA, for whom a Montana dependent exemption is allowed is broader than the list of eligible relatives for whom a federal dependent exemption is allowed.  The list includes a cousin or other lineal descendant of the sister or brother of the mother or father of the taxpayer, if for the taxpayer's tax year the individual received institutional care because of physical or mental disability, and if, before receiving the institutional care, they lived with the taxpayer in the taxpayer's home as a member of the taxpayer's family.

(b)  The list of individuals in 15-30-113, 15-30-2114, MCA, for whom a Montana dependent exemption is allowed is narrower than the eligible list of individuals for whom a federal dependent exemption is allowed and excludes a child placed for adoption, a foster child, and any other person who is not related to the taxpayer as provided in 15-30-113, 15-30-2114, MCA, unless:

(i)  their gross income did not exceed the limits provided in this rule; and

(ii)  they lived with the taxpayer in the taxpayer's home as a member of the taxpayer's family for the entire tax year.

(c)  A federal dependent exemption may be claimed for a person under a multiple support agreement exception even if the taxpayer does not provide over half of their total support.  Because Montana does not provide a multiple support agreement exception, a dependent exemption is not allowed for any person who does not receive over half of their total support from the taxpayer.  See the definition of "support," however, for special rules for determining the support of a child of divorced or separated parents.

(3) through (4)(b) remain the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-112, 15-30-2114, 15-61-201, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.401 to correct the statutes contained in the internal rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.402  PERSONAL EXEMPTIONS  (1)  Each taxpayer is allowed one personal exemption for himself or herself.  If the taxpayer is age 65 or older by the close of their tax year, they are entitled to an additional personal exemption.  If the taxpayer is blind, as provided in 15-30-112, 15-30-2114, MCA, at the close of their tax year, they are entitled to an additional personal exemption.  The additional exemptions are cumulative and a taxpayer who is at least 65 years old and blind by the close of the tax year is allowed three personal exemptions.

(2) through (3) remain the same.

(4)  The amount allowed as a personal exemption is as follows:

            (a)  for tax years beginning before December 31, 2004 the personal exemption is $800, adjusted annually for inflation by November 1 or each year as provided in 15-30-112, MCA (temporary).  The For all tax years, the amount of the personal exemption, as adjusted for inflation for recent tax years, can be obtained by accessing past-year downloadable tax forms from the department's internet homepage web site located at: http://www.mt.gov/revenue revenue.mt.gov; and

(b)  for tax years beginning after December 31, 2004, the personal exemption is $1,900, adjusted annually for inflation by November 1 of each year as provided in 15-30-112, 15-30-2114, MCA (effective January 1, 2005).

 

AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-112, 15-30-2114, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.15.402 to more accurately state the amount of personal exemption allowed each tax year and to update the department's web site address.  The department is also proposing to amend the rule to correct the statutes contained in the internal rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.403  EXEMPTIONS FOR DEPENDENTS  (1) through (2)(c) remain the same.

            (3)  Except as provided in (7) (6), in lieu of the dependent exemption described in (1), a taxpayer is allowed a dependent disabled child exemption as provided in this section and (4), (5), (6), and (7), and (8), equal in amount to twice the dependent exemption.  The exemption is allowed for a child who receives over half of his or her support from the taxpayer if:

(a)  the taxpayer's home is the dependent disabled child's principal place of abode;

(b)  the dependent child has a permanent disability constituting 50% or more of the body as a whole; and

(c)  a licensed physician has certified the qualifying disability.

(4)  For each tax year beginning before December 31, 2002, a taxpayer claiming a dependent disabled child deduction must file a physician's certification of qualifying disability with their individual income tax return.

(5)  For tax years beginning after December 31, 2002, filing an annual certification is not required, but the taxpayer must have a physician's certification of qualifying disability that they retain as a tax record and provide the department upon request.  In addition, the taxpayer makes the following representations when filing a return claiming a dependent disabled child exemption:

(a)  if the taxpayer has filed the physician's certification with a prior year's return, the taxpayer represents there is no change in the dependent's physical circumstances to the extent the dependent no longer qualifies for the exemption; and

            (b)  if the taxpayer has not filed the physician's certification with a prior year's return, the taxpayer represents they have a copy of the certification of a licensed physician of a qualifying disability and there is no change in the dependent's physical circumstances to the extent the dependent no longer qualifies for the exemption.

            (6) and (7) remain the same but are renumbered (5) and (6).

(8)(7)  The amounts allowed as a dependent exemption:

(a)  for tax years beginning before December 31, 2004, the dependent exemption is $800, adjusted annually for inflation by November 1 or each year as provided in 15-30-112, MCA. (temporary); and For all tax years the amount of the exemption, as adjusted for inflation for recent tax years, can be obtained by accessing past-year downloadable tax forms from the department's internet homepage web site located at: revenue.mt.gov.

(b)  for tax years beginning after December 31, 2004, the dependent exemption is $1,900, adjusted annually for inflation by November 1 of each year as provided in 15-30-112, MCA (effective January 1, 2005).

            (9)(8)  A taxpayer claiming a dependent disabled child deduction for a tax year beginning after December 31, 2002, is required to notify the department if the child's physical circumstances have changed and the child no longer has a permanent disability constituting 50% or more of the whole body and of any other change in the child's eligibility for the dependent disabled child exemption.  The notice must be in writing and mailed to:

the Department of Revenue,

P.O. Box 5805,

Helena, MT 59604-5805.

 

AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-112, 15-30-2114, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.15.403 to more accurately state the amount of dependent exemption allowed for a disabled child each tax year.  The department is also amending the rule to remove out-of-date provisions and to update the department's web site address.  The department is also proposing to amend the rule to correct the internal statutes contained in the  rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.407  PERSONAL EXEMPTION FOR ESTATES AND TRUSTS 

(1) remains the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-136, 15-30-2152, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.407 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.414  DEDUCTIONS FOR SMALL BUSINESS DONATIONS OF COMPUTER EQUIPMENT TO SCHOOLS  (1)  A taxpayer, who is a shareholder of an electing small business corporation, claiming a deduction for gifts of computer equipment as provided for in 15-30-126, 15-31-172, MCA, must attach the following information to the tax return claiming the deduction:

            (a)  a complete description of all items donated;

            (b)  a statement of the fair market value of each item donated;

            (c)  the date of manufacture for each item donated;

            (d)  the date the software was developed; and

            (e)  a copy of the written statement from the donee in which the donee agrees to accept the property and represents that the property will not be transferred by the donee in exchange for money, other property, or services.

            (2)  For the purposes of the deduction allowed by 15-30-126, 15-31-172, MCA, apparatus intended for use with the computer shall include, but not be limited to, software provided that the software was not developed more than five years prior to the date of its donation to a school.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-126, 15-31-172, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.414 to correct the internal statutes contained in the rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.427  DEDUCTION FOR HOUSEHOLD AND DEPENDENT CARE EXPENSES  (1) and (2) remain the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-30-121, 15-30-2131, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.427 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.510  DEFINITIONS  The following definitions apply to rules found in this subchapter:

(1)  "Nonbusiness deduction" has the same meaning as nonbusiness deduction for federal income tax purposes when computing a net operating loss and includes the following Montana items:

(a)  the standard deduction provided in 15-30-122, 15-30-2132, MCA;

(b)  the deduction for federal income taxes provided in 15-30-121, 15-30-2131, MCA, to the extent not attributable to business profits;

(c)  the deduction for political contributions provided in 15-30-121, 15-30-2131, MCA;

(d)  the part of the deduction for expenses for organic and byproduct inorganic fertilizer provided in 15-30-121, 15-30-2131, MCA, that is not a trade or business expense;

(e)  the deduction for payments for premiums for medical care and for premiums and certificates for long-term care provided in 15-30-121, 15-30-2131, MCA;

(f)  the deduction for a light vehicle registration fee provided in 15-30-121, 15-30-2131, MCA, if it is not a trade or business expense;

(g)  the deduction for the patriotic license plate surcharge provided in 15-30-154, 15-30-2142, MCA, if it is not a trade or business expense;

(h)  the deduction for per capita livestock fees if they are not trade or business expenses; and

(i)  the deductions for charitable contributions, including contributions to the child abuse and neglect prevention program provided in 15-30-121 15-30-2131 and 15-30-156, 15-30-2143, MCA, donations of computer equipment to schools by small business corporations provided in 15-30-126, 15-31-172, MCA, and donations to the veterans' services account or the state veterans' cemetery program provided in 15-30-154, 15-30-2142, MCA.

(2) remains the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-101, 15-30-110, 15-30-117, 15-30-2101, 15-30-2119, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.510 to correct the internal statutes contained in the rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.523  STANDARD DEDUCTION  (1)  Except as provided in (3) and (4), a taxpayer who does not claim itemized deductions is allowed the standard deduction.

            (2)  The standard deduction is 20% of the taxpayer's Montana adjusted gross income subject to the following minimum and maximum amounts, which are adjusted annually for inflation:.  The amount of the standard deduction, as adjusted for inflation for recent tax years, can be obtained by accessing past-year downloadable tax forms from the department's internet homepage web site located at: revenue.mt.gov.

 

(a)  Tax years beginning before December 31, 2004:

                                                                                                Minimum                    Maximum
 
Married filing a joint return

  or head of household                                                          $ 1,300                       $ 3,000

 

Single or married filing a

  separate return                                                                    $     665                      $ 1,500

 

(b)  Tax years beginning after December 31, 2004:

                                                                                    Minimum                    Maximum

Married filing a joint return

  or head of household                                                          $ 3,160                       $ 7,120

 

Single or married filing a

  separate return                                                                    $ 1,580                       $ 3,560

 

(3)  The following requirements govern the standard deduction of married taxpayers who do not file a joint return with their spouse:

(a)  A married taxpayer filing separately may claim the standard deduction only if his or her spouse does not file a Montana individual income tax return claiming itemized deductions;

(b)  As provided in 15-30-134, 15-30-2113, MCA, a taxpayer who is legally separated from his or her spouse at the end of the tax year under a decree of divorce, legal separation, or separate maintenance is not considered married for purposes of this rule;

(c)  In the event of death of one of the spouses, the restriction described in (3)(a) is applicable with respect to the tax year ending with death and the tax year of the surviving spouse in which the death occurs; and

(d)  By filing a separate return claiming a standard deduction, a married taxpayer represents that the taxpayer's spouse did not or will not claim itemized deductions.

(4) remains the same.

 

            AUTH:  15-30-305, 15-30-2620, MCA

            IMP: 15-30-122, 15-30-2132, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.15.523 to remove outdated language describing the amount of the standard deduction allowed each tax year and to direct the taxpayer to the department's web site for these amounts, and to update the department's web site address. The department is also proposing to amend the rule to correct the internal statutes contained in the rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.524  ITEMIZED DEDUCTIONS OF MARRIED TAXPAYERS 

(1) through (3)(d) remain the same.

            (4)  Except as provided in 15-30-111, 15-30-2110, MCA, ARM 42.15.206 and (5), if a taxpayer files a Montana return claiming an itemized deduction that is allowed only to taxpayers claiming a specific federal filing status, the deduction is disallowed unless the taxpayer files their Montana income tax return using the same status.

(5)  Married taxpayers who file separate Montana returns and are allowed a deduction for mortgage insurance premiums paid under section 163 of the Internal Revenue Code IRC, 26 U.S.C. 163, are allowed the same deduction calculated using the federal rules for married taxpayers filing a joint return.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-111, 15-30-121, 15-30-2110, 15-30-2131, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.524 to correct the internal statutes contained in the rule and the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.525  MONTANA ADJUSTED GROSS INCOME TO BE USED WHEN CALCULATING ITEMIZED DEDUCTIONS  (1)  Except as provided in (2), when the deductions allowed under 15-30-121, 15-30-2131, MCA, are limited to a percent of adjusted gross income by reference to the IRC, Montana adjusted gross income must be used when calculating the deductions limitation for the Montana return.  Montana adjusted gross income is defined in 15-30-111, 15-30-2110, MCA.

(2)  Taxpayers who are allowed a deduction for mortgage insurance premiums paid under section 163 of the Internal Revenue Code IRC, 26 U.S.C. 163, may use their federal adjusted gross income when computing the allowable amount for the Montana return.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-121, 15-30-2131, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.525 to correct the internal statutes contained in the rule and the  authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.526  SMALL BUSINESS LIABILITY FUNDS  (1)  Tax deductible administrative costs as provided by 15-30-127 15-30-2141 and 15-31-117, MCA, are limited to those that are allowable under the Internal Revenue Code and are ordinary and necessary costs directly connected with or pertaining to the management or maintenance of the principal of the fund.

            (2) through (4) remain the same.

 

            AUTH: 15-30-305, 15-30-2620, 15-31-501, MCA

            IMP: 15-30-107, 15-30-127, 15-30-2118, 15-30-2141, 15-31-117, 15-31-118, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.526 to correct the internal statutes contained in the rule and to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.601  MEDICAL SAVINGS ACCOUNT ADMINISTRATOR REGISTRATION  (1) through (6) remain the same.

 

AUTH:  15-30-305, 15-30-2620, MCA

IMP: 15-61-204, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.601 to correct the authority statute to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.602  MEDICAL SAVINGS ACCOUNT ADMINISTRATOR REPORTING AND PAYMENTS  (1) through (12) remain the same.

(13)  Failure to remit any withheld penalties within the time provided is considered to be an unlawful conversion of trust money.  Penalties provided in 15-1-216 and 15-30-321, 15-30-2641, MCA, apply to any violation of the requirement to collect, truthfully account for, and pay amounts required to be withheld from ineligible withdrawals of the account holder.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-61-202, 15-61-204, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.602 to correct the authority statute to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.603  MEDICAL SAVINGS ACCOUNT - WITHDRAWALS  (1)  The funds held in a medical savings account may be withdrawn by the account holder at any time during the year for eligible medical expenses paid during that year.  Withdrawals for the purpose of paying eligible medical expenses shall not be subject to the 10% penalty.

            (2) through (6) remain the same.

            (7)  Withdrawals made by January 15 by the account holder of a self-administered account for the purpose of reimbursing eligible medical expenses paid after December 1 of the previous year are qualifying withdrawals and are not subject to tax or the 10% penalty.

            (7)(8)  Except as provided in (8)(9), all payments made from a medical account must be made payable to the account holder, to the eligible medical provider, or to the estate or to the legal guardian.

            (8) and (9) remain the same but are renumbered (9) and (10).

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-61-203, MCA

 

REASONABLE NECESSITY:  For the taxpayer's ease and convenience, the department is proposing to amend ARM 42.15.603 to assist the taxpayer to be able to claim a withdrawal in a situation where an individual pays for eligible medical expenses at the end of the year but cannot withdraw funds for reimbursement from their Montana medical savings account until the next year as provided in 15-61-204(4), MCA.  The department is also proposing to amend the rule to correct the authority statute to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

            42.15.604  INDIVIDUAL LIABILITY  (1) through (3) remain the same.

 

            AUTH: 15-30-305, 15-30-2620, MCA

            IMP: 15-61-203, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.604 to correct the authority statute to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.605  DEFINITIONS  (1) through (8) remain the same.

 

AUTH: 15-30-305, 15-30-2620, MCA

IMP: 15-30-112, 15-30-2114, 15-61-102, 15-61-201, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.605 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.802  CONTRIBUTIONS TO FAMILY EDUCATION SAVINGS PROGRAM ACCOUNTS  (1) through (3) remain the same.

 

AUTH: 15-30-305, 15-30-2620, 15-62-201, MCA

IMP: 15-30-111, 15-30-2110, 15-62-201, 15-62-207, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.802 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.803  WITHDRAWALS FROM FAMILY EDUCATION SAVINGS PROGRAM ACCOUNTS  (1) through (9) remain the same.

 

AUTH: 15-30-305, 15-30-2620, 15-62-201, MCA

IMP: 15-30-111, 15-30-2110, 15-62-201, 15-62-208, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.803 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.804  VERIFICATION OF FAMILY EDUCATION SAVINGS PROGRAM ACCOUNT CONTRIBUTIONS AND WITHDRAWALS  (1) through (7) remain the same.

 

AUTH: 15-30-305, 15-30-2620, 15-62-201, MCA

IMP: 15-30-111, 15-30-2110, 15-62-201, 15-62-208, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.804 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.805  DEFINITIONS  (1) through (8) remain the same.

 

AUTH: 15-30-305, 15-30-2620, 15-62-201, MCA

IMP: 15-30-111, 15-30-2110, 15-62-103, 15-62-201, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.805 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.806  TAXATION OF FAMILY EDUCATION SAVINGS PROGRAM ACCOUNT EARNINGS  (1) remains the same.

 

AUTH: 15-30-305, 15-30-2620, 15-62-201, MCA

IMP: 15-30-111, 15-30-2110, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.806 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.807  EFFECTIVE DATE OF CONTRIBUTION FOR TAX PURPOSES

(1) remains the same.

 

AUTH: 15-30-305, 15-30-2620, 15-62-201, MCA

IMP: 15-30-111, 15-30-2110, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.807 to correct the authority and implementing statutes to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.903  ACCOUNT ADMINISTRATOR REPORTING AND PAYMENTS

(1) through (9)(c) remain the same.

(10)  Failure to remit any withheld penalties within the time provided is considered to be an unlawful conversion of trust money.  Penalties provided in 15-1-216 and 15-30-321 15-30-2641, MCA, apply to any violation of the requirement to collect, truthfully account for, and pay amounts required to be withheld from ineligible withdrawals of the account holder.

 

AUTH: 15-1-201, MCA

IMP: 15-63-202, 15-63-204, MCA

 

Reasonable Necessity:  The department is proposing to amend ARM 42.15.903 to correct the internal statutes contained in the rule to reflect the changes made by the 2009 Legislature in House Bill 24, (Ch. 147, L. 2009), which recodified Title 15, chapter 30, Montana Code Annotated.

 

42.15.906  TAX EXEMPTION FOR FIRST-TIME HOME BUYER  (1) through (3) remain the same.

(4)  The amounts deposited into a first-time home buyer savings account is not considered principal until the year it is excluded from adjusted gross income pursuant to 15-30-111 15-30-2110, MCA.  For example, if a single individual who has never owned a home transfers $15,000 from an existing savings account into a first-time home buyer account in Year 1 and purchases a qualifying home at the end of December in Year 3, the effect on their Montana returns will be as follows:

(a)  Example:  In 2004, a single individual who has never owned a home transferred $15,000 from an existing savings account into a first-time home buyer account.  For 2004 year one, the individual reduced reduces the their state income by $3,000 plus $90 in interest earned on the $3,000 principal only ($90 at the rate of 3% of the $3,000 principal).  The remaining interest ($360 at the rate of 3% of the $12,000 carryover amount) is taxable in 2003 year one.

(i)(b)  In 2005 year two, the single individual is allowed a $3,000 carryover reduction plus interest earned on $6,090 ($183 at the rate of 3% of the $6,000 principal) for a total of $3,183 reduction on the state income tax return.  The remaining interest ($281 at the rate of 3% of the $9,360 carryover amount) is taxable in 2005 year two.

(ii)(c)  At the end of December in 2006 year three, the single individual buys a qualifying home.  The individual is permitted the $3,000 carryover reduction on the Montana income tax for the year 2006 year three plus interest earned to the date of purchase ($278 at the rate of 3% on $9,273) for a total of $9,551.  The taxpayer must spend at least $9,551 for eligible first-time home buyer expenses.  The amount includes $9,000 that qualifies for the reduction ($3,000 for 2004 year one; $3,000 for 2005 year two; $3,000 for 2006 year three) plus the tax deferred interest for $551 earned during 2004 year one, 2005 year two, and 2006 year three.

(iii)(d)  Once the taxpayer purchases the home, the taxpayer can no longer claim the carryover reduction for the portion of the $15,000 ($6,000 plus interest) that the taxpayer did not claim as a reduction in prior years.

 

AUTH: 15-1-201, MCA

IMP: 15-63-203, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.15.906 in order to clarify the example and omit references to specific years so that the years remain current and do not have to be updated in the future, reducing administrative costs.

 

5.  Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing.  Written data, views, or arguments may also be submitted to: Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail canderson@mt.gov and must be received no later than April 9, 2010.

 

6.  Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.

 

7.  An electronic copy of this Notice of Public Hearing is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes."  The department strives to make the electronic copy of this Notice of Public Hearing conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered.  In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

 

8.  The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency.  Persons who wish to have their name added to the list shall make a written request, which includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notices regarding particular subject matter or matters.  Notices will be sent by e-mail unless a mailing preference is noted in the request.  Such written request may be mailed or delivered to the person in 5 above or faxed to the office at (406) 444-3696, or may be made by completing a request form at any rules hearing held by the Department of Revenue.

 

9.  The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled.  The primary bill sponsors for Senate Bill 418, Senator Gary Branae and House Bill 315, Representative Anders Blewett were contacted on July 14, 2009 by regular mail.  The primary bill sponsor for House Bill 24, Representative Penny Morgan was contacted on October 14, 2009, by regular mail.

 

/s/ Cleo Anderson                             /s/ Dan R. Bucks

CLEO ANDERSON                          DAN R. BUCKS

Rule Reviewer                                   Director of Revenue

 

Certified to Secretary of State March 1, 2010

 

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