Tax Type
General Provisions
Description
Virginia Income Tax Fixed-Date Conformity Advanced T December 31, 2008
Topic
Clarification
Date Issued
02-12-2009
TAX BULLETIN 09-1
Virginia Department of Taxation
February 12, 2009
Virginia Department of Taxation
February 12, 2009
IMPORTANT INFORMATION REGARDING
2008 VIRGINIA INCOME TAX RETURNS
VIRGINIA INCOME TAX FIXED-DATE CONFORMITY ADVANCED TO DECEMBER 31, 2008
2008 VIRGINIA INCOME TAX RETURNS
VIRGINIA INCOME TAX FIXED-DATE CONFORMITY ADVANCED TO DECEMBER 31, 2008
Under emergency legislation (House Bill 1737; Chapter 2 of the 2009 Acts of Assembly and Senate Bill 985; Chapter 3 of the 2009 Acts of Assembly) passed by the 2009 General Assembly and signed by Governor Kaine, Virginia’s fixed-date of conformity to the terms of the Internal Revenue Code will advance from December 31, 2007 to December 31, 2008. Virginia will, however, continue to disallow most bonus depreciation allowed for certain assets under federal income taxation and any 5-year carry-back of net operating losses (“NOL”) allowed for NOLs generated in either taxable year 2001 or 2002. This notice is intended to provide taxpayers with directions on how to reconcile this legislation on their 2008 Virginia income tax returns.
Effective for taxable years beginning on and after January 1, 2008, Virginia’s fixed-date of conformity to the terms of the Internal Revenue Code will advance from December 31, 2007, to December 31, 2008 with limited exceptions. Virginia will continue to disallow most bonus depreciation allowed for certain assets and any 5-year carry-back of net operating losses (“NOL”) allowed for NOLs generated in either taxable year 2001 and 2002. Virginia will conform, however, to all other previously enacted provisions under federal income tax law.
Bonus Depreciation
Virginia will continue to disallow any bonus depreciation allowed for certain assets under Internal Revenue Code (“IRC”) § 168(k). In addition, Virginia’s fixed-date conformity will not include any bonus depreciation that is allowed under IRC §§ 168(l), 168(m), 1400L, and 1400N. These sections allow bonus depreciations in limited circumstances and were designed to benefit the following:
-
- Cellulosic biofuel plant property – IRC § 168(l);
Reuse and recycling property – IRC § 168(m);
New York Liberty Zone property – IRC § 1400L; and
Gulf Opportunity Zone property – IRC § 1400N.
- Cellulosic biofuel plant property – IRC § 168(l);
Virginia’ fixed-date conformity will allow any bonus depreciation that is allowed under IRC § 168(n), which is designed to benefit qualified disaster assistance property.
When reporting any adjustments related to bonus depreciation, the adjustments for all of the categories of bonus depreciation should be grouped together on the applicable line of the taxpayer’s income tax return.
VIRGINIA INCOME TAX
For approximately thirty years, Virginia conformed to federal income tax law. Whenever federal income tax law changed, the changes automatically affected Virginia income taxes, unless otherwise exempted. In 2003, Virginia began a period of fixed conformity moving the date each year. In 2008, a provision was enacted that fixed Virginia’s conformity to Internal Revenue Code terminology to the Internal Revenue Code as it existed on December 31, 2007. Because of changes in federal law since that date, some taxpayers would have had to make adjustments to their federal adjusted gross income or federal taxable income through the fixed-date conformity adjustments on the 2008 income tax return. This bulletin will instruct taxpayers about which fixed-date conformity adjustments are still necessary for their 2008 income tax returns, if applicable.
Federal Legislation
By advancing Virginia’s date of conformity to December 31, 2008, Virginia conforms to five significant measures enacted by Congress since December 31, 2007 that affect income taxation in Virginia:
The Food and Energy Security Act and the Heartland, Habitat, Harvest, and Horticulture act, which provided targeted tax relief to conservation and agricultural interests;
The Heroes Earnings Assistance and Relief Tax Act, which provided tax benefits to those serving in the military and in the Peace Corps;
The Housing and Economic Recovery Act, which modified certain rules applicable to bonds and provides other forms of tax relief; and
The Emergency Economic Stabilization Act, which extended the exclusion of discharges of principal residence acquisition indebtedness from gross income of individuals, provided a specified method of cost recovery for certain business, and provided a variety of other tax benefits.
Special Instructions for Taxpayers
Taxpayers Who Have Not Yet Filed
Individuals
Individuals who have a special, fixed-date conformity adjustment for bonus depreciation are still required to make the corresponding adjustments described on Pages 17 through 19 of the Instructions for Form 760. In addition, if the federal bonus depreciation has an effect on any other item included in federal adjusted gross income, an adjustment must still be made as either an addition (refer to Line B of Page 18) or as a subtraction (refer to Line B of Page 19) on Form 760. Individuals who are required to make a fixed-date conformity adjustment may use the worksheet provided on Page 12 of the Form 760 Instructions to assist them in calculating the amount of the adjustment. The worksheet should not be filed with the Virginia return.
Part-Year or Nonresident Individuals
For individuals who must file either a Form 760PY Part-Year Resident Individual Income Tax Return or a Form 763 Nonresident Individual Income Tax Return, the changes explained for individuals apply. The corresponding fixed-date conformity instructions for part year residents are located on Pages 13 and 14 of the Form 760PY Instructions. The corresponding fixed-date conformity instructions for nonresidents are located on Pages 11 and 14 of the Form 763 Instructions.
Corporations
Corporations that have not yet filed their income tax returns should only make special, fixed-date conformity adjustments relating to the bonus depreciation. Adjustments relating to the bonus depreciation are entered on Line 1 of Section A and Line 1 of Section B on the Schedule 500 ADJ and explained on Page 6 of the Form 500 Instructions. In addition, if the federal bonus depreciation has an effect on any other item included in federal taxable income, an adjustment is still required to be made as either an addition on Line 2 of Section A or as a subtraction on Line 2 of Section B of Schedule 500 ADJ.
Pass-Through Entities and Fiduciaries
For pass-through entities filing Form 502, adjustments relating to the bonus depreciation are described on Pages 7 and 8 of the Form 502 Instructions. The adjustments relating to bonus depreciation are entered on Lines 8 and 14 of Form 502. In addition, if the federal bonus depreciation has an effect on any other item included in federal taxable income, an adjustment is still required to be made as either an addition on Line 9 or a subtraction on Line 15 of Form 502.
Fiduciaries that have a special, fixed-date conformity adjustment for bonus depreciation are still required to make the corresponding adjustments that are described on Page 7 of the Instructions for Form 770. In addition, if the federal bonus depreciation has an effect on any other item included in federal taxable income, an adjustment is still required to be made as either an addition (refer to Line 3b of Page 7 of the 770 Instructions) or as a subtraction (refer to Line 8b of Page 8 of the 770 Instructions).
Treatment of the 5-Year Net Operating Loss Carryback
The treatment of any 5 year net operating loss carryback is not affected by the legislation advancing Virginia’s conformity date. All taxpayers should follow the instructions given in Virginia Tax Bulletin 03-1 (2/18/2003) regarding any necessary adjustment for a 5 year net operating loss carryback.
Taxpayers Who Have Already Filed
Individuals
Individuals who have already filed a 2008 individual income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2008 Virginia individual income tax return. Amended individual income tax returns are filed using the 2008 Form 760 by filling in the oval at the top of Page 1 to indicate that the return is an amended return. Taxpayers should fill out the form completely and disregard those fixed-date conformity additions and subtractions explained above. Also, any taxpayer filing an amended return should follow the special instructions for amended returns on Page 3 of the Form 760 Instructions.
Part-Year or Nonresident Individuals
For nonresidents, instructions for filing an amended return are found on Page 3 of the Form 763 Instructions. Instructions for part-year residents filing an amended return are found on Page 4 of the Form 760PY Instructions.
Corporations
Corporations that have already filed a 2008 corporation income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2008 Virginia corporation income tax return. For Form 500 filers, amended returns are filed by completing the Amended Return Section on Page 1 of Form 500 and Schedule 500ADJ, Section C.
Pass-Through Entities and Fiduciaries
For pass-through entities filing Form 502, amended returns are filed using the Form 502 by checking the amended return box located on Page 1. Taxpayers should fill out the form completely as if it were the original return and recompute the proper fixed-date conformity adjustments explained above.
Fiduciaries that have already filed a 2008 individual income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2008 Virginia fiduciary income tax return. Amended fiduciary income tax returns are filed using the 2008 Form 770 by checking the amended return box located on Page 1. Taxpayers should fill out the form completely as if it were the original return and recompute the proper fixed-date conformity adjustments. Also, any taxpayer filing an amended return should follow the special instructions for amended returns on Page 2 of the Form 770 Instructions.
If you have additional questions, please visit our website at http://www.tax.virginia.gov, or contact us at (804) 367-8031 for individual income tax questions or (804) 367-8037 for corporate income tax questions.
Rulings of the Tax Commissioner