Tax Type
Corporation Income Tax
Description
Combined return
Topic
Corporate Distributions and Adjustments
Date Issued
11-29-1982
November 29, 1982
Re: §58-151.087 Penalty for Failure to File Corporation
Income Tax Returns for Fiscal Year Ended October 1980
§58-151.079; Permission to File Consolidated Return for
All Taxpayers Captioned Above Beginning for Fiscal Year Ended
October 1980
Dear ********************
In your letter dated September 1, 1982, you request relief of the penalty assessed on the companies captioned above, and you also request permission to file a consolidated tax return for fiscal year ended October 1980.
FACTS
Taxpayer and its subsidiaries are all doing business exclusively in Virginia. All corporations in the affiliated group have filed separate Virginia returns for prior years with the exception of the newly incorporated subsidiary, For. fiscal year ending October 1980 taxpayer filed consolidated federal and Virginia returns reporting a loss. When the Department assessed the non-filing penalty on ********* and ********* because taxpayer contested the non-filing penalty assessment and applied for permission to file a consolidated return.
Taxpayer contends that the business activities of the parent and subsidiaries change substantially after reorganization and the fiscal year ended October 31, 1980 should be considered the initial tax year of the corporations and therefore, the election year for determination of the filing election for Virginia income tax purposes.
DETERMINATION
As it existed in prior years, §58-151.079 allowed corporations to elect to file either separate or consolidated returns in the first year that two or more affiliated corporations were required to file Virginia returns. All corporations except ***** elected to file separate returns for prior years. The addition of a wholly-owned subsidiary such as **************** does not initiate a filing elections for Virginia income tax purposes since the other affiliated corporations made a filing election previously.
In a consolidated return inter-affiliate transactions are eliminated and the apportionment factors of multi-state corporations are combined. As a result the income subject to Virginia income tax on a consolidated return may be significantly different than the total shown on separate returns. For this reason the Department of Taxation very rarely grants permission for corporations to change to or from consolidated returns once the election has been made.
Accordingly permission to file a consolidated return for 1980 is denied.
Separate return must be prepared and filed and any tax due must be paid with interest. The penalty assessed for failure to file the separate returns will be abated if the returns are not filed within 30 days from the date of this letter. If the returns are not filed within this time, the penalty for failure to pay will be assessed on the returns if applicable.
§58-151.079 has been amended to permit affiliated corporations to file a combined return for taxable years beginning on and after January 1, 1981. A change from separate returns to combined return does not affect the computation or apportionment of income except that losses of one corporation may offset the income of an affiliated corporation.
Permission is hereby granted to file a combined return for taxable years beginning on or after January 1, 1981 which includes all affiliates doing business in Virginia upon the following conditions:
1. Schedules shall be filed with the combined return which contain all information which would be contained in a separate Virginia return for each and every eligible member of the affiliated group. See Sections 58-151.079 and 58-151.081.
2. In computing the Virginia Taxable Income of each eligible member of the affiliated group there shall be added to federal taxable income the amount of any net operating loss deduction or other deduction which has been recognized for Virginia income tax purposes and offset other income in a Virginia consolidated or combined return for other taxable years. See, for example, Federal Income Tax Regulation 1.1502-79.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner