Tax Type
Individual Income Tax
Description
S corporation nonresident shareholders
Topic
Returns/Payments/Records
Date Issued
01-15-1987
January 15, 1987
Re: Ruling Request - Nonresident Shareholders
Individual Income Tax
Dear***************
This is in reply to your letter of March 26, 1986 in which you request permission on behalf of the nonresident shareholders of ********* Company) to file a unified nonresident individual income tax return.
FACTS & PROPOSAL
Company is a non-Virginia corporation doing business in Virginia, with a portion of its taxable income allocable to sources within Virginia. Company, currently a C corporation, has recently requested permission to elect to be taxed as an S corporation under the Internal Revenue Code. Company has 15 shareholders, all of whom are nonresidents of Virginia and who would not otherwise be required to file a Virginia nonresident individual income tax return.
In order to relieve the individual shareholders of Company of the responsibility of filing Virginia nonresident individual income tax returns, you request permission to file using one of the following methods:
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- 1. Continue to file as a regular C corporation. Even though the corporate tax rate exceeds the maximum individual tax rate by 1/4 of one percent, you are willing to pay the greater amount of tax in return for eliminating the need for the shareholders to individually file returns.
2. If method one is not acceptable, you request permission to file one unified individual income tax return reflecting the combined Virginia taxable income of the nonresident shareholders of Company.
- 1. Continue to file as a regular C corporation. Even though the corporate tax rate exceeds the maximum individual tax rate by 1/4 of one percent, you are willing to pay the greater amount of tax in return for eliminating the need for the shareholders to individually file returns.
RULING
Virginia Code §58.1-401.4 specifically exempts S corporations from the Virginia corporate income tax; therefore, the department is unable to allow Company to file using your method number one. However, the department will allow Company to file a unified individual income tax return on behalf of the nonresident shareholders under the following conditions:
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- 1. A schedule must be provided containing the total income of the S corporation 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 shareholders who have no income from Virginia sources other than income attributable to the S corporation.
3.All nonresident shareholders 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.
4. The return will include each nonresident shareholder's name, address, social security number and Virginia taxable income attributable to each nonresident shareholder.
5. The Virginia income tax will be computed at the rates specified under Virginia Code §58.1-320 on Company's income attributable to the nonresident shareholders 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 shareholder for his share of the total tax and any statements made on his behalf. The statement will be signed by each nonresident shareholder.
7. A similar unified return will be filed and payment made for the declaration of estimated tax, if required.
- 1. A schedule must be provided containing the total income of the S corporation 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.
If the above is acceptable, Company may commence the unified filing under the above conditions effective for calendar year 1986. 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 shareholder having taxable income for a taxable year must file a Virginia return, unless the individual meets the "$3,000 filing exception" described in Virginia Code §58.1-321. Failure to file an individual nonresident return would subject the nonresident shareholder 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