Tax Type
Corporation Income Tax
Description
Estimated income tax underpayment penalty; Change in filing method from consolidated to separate
Topic
Penalties and Interest
Date Issued
08-07-1986
August 7, 1986
Re: Ruling Request: Corporate Estimated
Dear *********************
This will reply to your letter of June 2, 1986 concerning payment of corporate estimated income tax.
FACTS
You indicate. that two companies will file a consolidated Virginia income tax return for the year ended December 31, 1985 but that, due to an ownership change, they will be unable to file a consolidated return for calendar 1986. You ask whether each company will avoid underpayment penalties if it makes 1986 Virginia estimated tax payments which are at least equal to what would have been its 1985 Virginia income tax had it filed a separate unconsolidated return.
DETERMINATION
VR 630-3-500 C.l., Virginia Corporation Income Tax Regulations, provides that Virginia estimated tax should be based upon the amount of federal taxable income for the federal estimated tax plus the estimated net Virginia modifications. An underpayment penalty can be avoided if an estimate of tax equals or exceeds an amount equal to the tax computed at the rate applicable to the taxable year but otherwise on the basis of the f acts shown on the return of the corporation for, and the law applicable to, the preceding taxable year. This exception is identical to the exception under section 6655(d)(2) of the Internal Revenue Code of 1954, and we will look to the provisions of Treasury Regulations on this point.
For the purpose of computing the prior year's tax under the second exception to the underpayment penalty, Treasury Regulation §1.1502-5(b)(5) provides that ". . .the tax shown on a consolidated return shall be allocated to the members of the group under the method which the group has elected pursuant to section 1552 and §1.1502-33(d)(2)." Because one of the alternative methods of allocating consolidated tax liability in section 1552 is based upon the separate return liability, the method you propose may be an acceptable method of computation, is that is the method the companies elected under section 1552.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner