Tax Type
Corporation Income Tax
Description
Loss on investment in subsidiary corporation
Topic
Subtractions and Exclusions
Taxable Income
Date Issued
12-19-1986
- December 19, 1985
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-402 Federal Taxable Income
Dear ****
This is in response to your letter of August 27, 1985, protesting an assessment of additional income tax for 1982.FACTSThe taxpayer is a member of an affiliated group of corporations which files a consolidated federal income tax return. In 1982 the taxpayer recognized a loss on an investment in a subsidiary corporation. On the federal return the loss is not recognized because inter-company transactions are eliminated.
In its financial records the taxpayer charged the loss directly to the retained earnings of the consolidated group instead of to the separate income statement of the taxpayer. When the department's auditor attempted to reconcile the separate Virginia returns with the consolidated federal return and the financial records the loss was not allowed.DETERMINATION
Virginia starts with federal taxable income computed on the same basis as the Virginia return is filed. If the taxpayer had filed separate federal returns the loss would have been allowed for federal purposes. The taxpayer has furnished satisfactory evidence as to the details of the loss.
Accordingly the audit will be adjusted to start with federal taxable income computed with the deduction for the loss. You will receive a corrected audit report within a few weeks.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner