Tax Type
Individual Income Tax
Description
S corporation nonresident shareholders; Unified nonresident income tax return
Topic
Returns/Payments/Records
Date Issued
02-20-1987
February 20, 1987
Re: Ruling Request - Nonresident Shareholders
Individual Income Tax
Dear********************
This is in reply to your letter of December 3, 1986 in which you request permission on behalf of the nonresident shareholders of *********** (Company) to file a unified nonresident individual income tax return.
FACTS
Company is a non-Virginia corporation doing business in Virginia, with a portion of its taxable income allocable to sources within Virginia. Effective January 1, 1987, Company has elected to be taxed as an S corporation under the Internal Revenue Code. Company has 30 shareholders all of whom are nonresidents of Virginia. You request permission to file a unified nonresident individual income tax return on their behalf to avoid multiple filing requirements for the individual shareholders. In the event that permission to file a unified nonresident individual income tax return is not granted, you request that Company be allowed to continue to file a return and pay tax as a C corporation.
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 this method. However, the department will allow Company to file a unified individual income tax return on behalf of the nonresident shareholders under the following conditions:
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.
If the above is acceptable, Company 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 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