Tax Type
Individual Income Tax
Partnerships
Description
Nonresident partners; Conditions for filing a unified nonresident individual income tax return
Topic
Partnerships
Returns/Payments/Records
Date Issued
01-15-1987
January 15, 1987
Re: Ruling Request - Nonresident Partners Individual Income Tax
Dear*********************
This is in reply to your letters of June 30, 1986 and September 18, 1986 in which you request that the department allow *************** (Partnership) file a unified nonresident individual income tax return on behalf of their nonresident partners.
FACTS & PROPOSAL
Partnership has over 300 partners in various states involved in the practice of public accounting. During calendar year 1985 Partnership opened an office in Virginia. In order to relieve Partnership's individual partners of the responsibility of filing Virginia nonresident individual income tax returns, you request that the department grant permission to Partnership to file one unified nonresident individual income tax return, on behalf of the nonresident partners, under the following conditions:
1. For each calendar year, beginning in 1986, Partnership will file a unified nonresident individual income tax return. Said return will report partnership income for the partnership year end falling within the calendar year. The unified return and any required estimated income tax payments will be made on a calendar year basis.
2. Business income apportioned to Virginia shall be determined by separate accounting.
3. There shall be attached to the unified return a schedule containing the total income of the partnership and the amount attributable to Virginia.
4. The unified return will reflect only the income or loss attributable to Virginia nonresident partners who have no income from Virginia sources other than income attributable to the partnership.
5. The unified return will include each nonresident partner's name, address, social security number and the Virginia taxable income attributable to each nonresident partner.
6. The Virginia income tax will be computed at 5.75% of the 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.
7. Due to the large number of partners involved and the fact that some of the partners for tax purposes, are the heirs, estates and or trusts of deceased partners, the return will contain a statement, signed by each nonresident, indicating the responsibility of each nonresident partner for his share of the total tax and any statements made on his behalf.
8. Partnership will obtain approval from the nonresident partners without other income from Virginia sources to join in the filing of the unified return and a statement to that effect will be included in the return.
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. However, since some of the partners of Partnership are not "individuals" as defined under Virginia Code §58.1-302, these partners may not be included in the filing of a unified Virginia nonresident individual income tax return.
These same regulations provide in §630-4-391, that the income attributable to Virginia sources is to be calculated in accordance with the statutory formula set forth in Virginia Code §§58.1-408 through 58.1-421, making such changes so necessary after considering the differences between corporations and partnerships. This statutory method is to be used unless an alternative method is approved by the department. The method that you propose to use is not consistent with the statutory method, nor have you provided evidence that the statutory method produces an unconstitutional result. Accordingly, based upon the information presented, we find your method of determining the income attributable to Virginia sources, as set out in your condition number 2, unacceptable.
In order for the department to accept a unified nonresident individual income tax return and thus relieve the nonresident partners of the responsibility of having to file separate Virginia nonresident returns, the following conditions must be met:
1. For each calendar year, beginning in 1986, Partnership shall file a unified nonresident individual income tax return. Said return shall report partnership income for the partnership year end falling within the calendar year. The unified return and any required estimated income tax payments shall be made on a calendar year basis. (Same as your condition 1.)
2. 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.
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 reflect only the income or loss attributable to Virginia individual nonresident partners who have no income from Virginia sources other than income attributable to the partnership.
5. The unified return will include each nonresident partner's name, address, social security number and the Virginia taxable income attributable to each nonresident partner. (Same as your condition 5.)
6. The Virginia income tax will be computed at the rates specified under Virginia Code §58.1-320 on Partnership's income attributable to the individual nonresident partners without benefit of itemized deductions, standard deductions, personal exemptions or credit for income taxes paid to states of residence.
7. The return will contain a statement indicating the responsibility of each individual nonresident partner for his share of the total tax and any statements made on his behalf. The statement will be signed by each individual nonresident partner.
8. Since some of the partners are not "individuals", but instead estates or trusts, ineligible to join in the filing of the unified return; they shall file separately as required under Virginia Code §58.1-381.
If the above is acceptable, Partnership 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 partner 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 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