Tax Type
Individual Income Tax
Description
Nonresident Partners; Conditions for unified income tax return
Topic
Partnerships
Returns/Payments/Records
Date Issued
05-13-1987
May 13, 1987
Re: Ruling Request - Unified Return
Individual Income Tax
Dear *********************
This is in reply to your letter of December 23, 1986 and to************* letter of March 13, 1987 in which it is requested that the department grant permission to ***************(Partnership) to file a unified nonresident individual income tax return on behalf of its partners.
FACTS & PROPOSAL
Partnership recently underwent a restructuring. Effective December 30, 1986, it converted from a corporation to a master limited partnership. This resulted in the approximately 24,000 shareholders becoming limited partners. As a result of the conversion to a partnership, the company will no longer be liable for Virginia corporate income tax; instead, the income from the company's operations attributable to Virginia will be reportable by the partners of the new limited partnership.
You made the following proposals to relieve the individual partners of the responsibility of filing the required Virginia individual income tax returns based upon the income that they receive from the Partnership:
-
- 1. That Partnership be granted permission to file a single composite return for all of its limited partners;
2. That Partnership be allowed to pay all of the tax associated with the composite return including estimated tax payments required;
3. That the limited partners would not be required to report their share of income from the partnership on a separate return filed with Virginia;
4. That the limited partners who do file their own separate return with Virginia (e.g. residents and nonresidents with sources of income other than from the Partnership) be given credit for the amount of tax that the partnership paid to Virginia on their behalf.
- 1. That Partnership be granted permission to file a single composite return for all of its limited partners;
RULING
Section 630-4-391(C)(2) of the Virginia Taxation of Partnerships Regulations provides that the Tax Commissioner may grant permission to nonresident partnerships to file a statement of combined partnership income attributable to nonresident partners. This provision of the regulations relieves the nonresident partners of the responsibility of having to file nonresident individual income tax returns. There is neither regulatory authority nor statutory authority for allowing a nonresident partnership to pay the tax for a Virginia resident. Accordingly, the department finds your proposal unacceptable.
Partnerships are under no obligation to file such a unified return. Each partnership should examine the option of filing a unified return on behalf of its nonresident partners, based upon the requirements of the department and the effect of these requirements on their partners. While it may be beneficial for one partnership to file such a return for its partners, it may not be beneficial for another partnership to file such a return.
Pursuant to the above regulatory authority, the department has developed "standard" requirements, which are imposed with very little deviation upon all partnerships which request permission to file such a return on behalf of their Virginia nonresident partners. These "standard" requirements were developed in order to minimize the administrative burden on both the partnership and the department and to ensure compliance with the laws of this Commonwealth. These same basic requirements are imposed upon all partnerships requesting permission to file a unified return in order that equal treatment is assured.
In order for the department to accept a unified tax return and thus relieve the nonresident partners of the responsibility of filing separate Virginia nonresident returns, the following conditions must be met:
1. A schedule must be provided containing the total income of the Partnership and the amount attributable to Virginia under either the applicable state apportionment formula, as provided in Virginia Code §§58.1-408 through 58.1-421, or by using an approved alternative method.
2. The unified return must reflect only the income or loss attributable to Virginia nonresident partners who have no income from Virginia sources other than income attributable to Partnership.
3. All individual nonresident partners without other income from Virginia sources must elect to join in the filing of such a return and a statement to such effect will be included in the return. Since some of the partners of Partnership are not "individuals" as defined by Virginia Code §58.1-302, these partners must be excluded from the filing of the unified Virginia nonresident individual income tax return.
4. The unified return will include each nonresident partners name, address, social security number and the Virginia taxable income attributable to each nonresident partner.
5. The Virginia income tax will be computed at the rates specified under Virginia Code §58.1-320 on Partnership's income attributable to the nonresident partners without benefit of itemized deductions, standard deductions, personal exemptions or credit for income taxes paid to states of residence.
6. The return will contain a statement indicating the responsibility of each nonresident partner for his share of the total tax and any statements made on his behalf. The statement will be signed by each nonresident partner.
7. A similar unified return will be filed and payment made for the declaration of estimated tax, if required.
If the above is acceptable, Partnership may commence the unified filing under the above conditions effective for calendar year 1987. However, we reserve the right to withdraw or modify the foregoing authorization upon reasonable notice to you.
If the above is not acceptable, please note that each nonresident partner having taxable income for a taxable year must file a Virginia return, unless the individual meets the filing exception described in Virginia Code §58.1-321. Failure to file an individual nonresident return would subject the nonresident partner to penalty and interest, which could not be mitigated by the fact that a unified filing had been made unless the unified filing was in accordance with the conditions set forth above.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner