Tax Type
Individual Income Tax
Partnerships
Description
Foreign source partnership income
Topic
Partnerships
Subtractions and Exclusions
Date Issued
07-15-1986
July 15, 1986
Re: Virginia Code §58.1-1821 Application
Individual Income Tax
Dear ********************
This is in response to your letter dated July 11, 1985 in which you make application for correction of the individual income tax assessments issued by tho Department of Taxation for taxable years 1981 and 1982.
FACTS
During the taxable years in question, you were a partner in ********************** (Partnership), an international accounting firm. As part of your partnership distribution, you received income which was from foreign sources. According to your letter, this income was received by Partnership from some of its former affiliates located outside of the United States. Your letter states that the purchasers of these former affiliates are paying a certain amount over a period of years for goodwill and other intangibles that have been developed.
On the basis of your interpretation of the foreign source income subtraction provided under Virginia Code §58.1-322 C 7, you excluded all of this income from foreign sources when computing your Virginia Taxable Income for the years in question. The Department of Taxation, during a subsequent examination of your returns, disallowed the exclusion of this income. It is the assessments that resulted from the disallowance of this exclusion that you protest.
DETERMINATION
The assessment for taxable year 1981 was issued outside of tho statute of limitations imposed upon the Department of Taxation under Virginia Code §58.1-312. The assessment for taxable year 1981 will be abated in full.
We recently issued a determination letter on a similar application for correction filed under Virginia Code §58.1-1821, also on the subject of the Virginia Foreign Source Income Subtraction (copy attached). This determination explained the department's position on the subtraction provided under Virginia Code §58.1-322 C 7 and regulated under §630-2-322 of the Virginia Individual Income Tax Regulations. This attached determination affirmed the department's regulations by explaining the legislative history surrounding the enactment of the Virginia Foreign Source Income Subtraction. I believe that the determination made in that case is pertinent to your situation.
To the extent that you can substantiate that the amounts that you subtracted from federal adjusted gross income in computing Virginia Taxable Income were: 1) Income from the sale of intangible property located without the United States or; 2) Not earned income as defined under IRC §911(b) and 3) Qualify as "income from without the United States" under IRC §861 through 863, the assessment that you protest will be adjusted. Please send the necessary documentation within the next 30 days to:
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- **********************, Director
Tax Policy Division
Virginia Department of Taxation
P. O. Box 6-L
Richmond, Virginia 23282
- **********************, Director
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Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner