Tax Type
Corporation Income Tax
Description
Net operating loss
Topic
Taxable Income
Date Issued
02-27-1987
February 27, 1987
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-402 Virginia Taxable Income; Net Operating Loss
Dear ******************
This is in response to your letter of January 29, 1985, requesting us to reconsider the denial of a refund for the 1982 taxable year based on a net operating loss deduction from 1979. The denial had been affirmed by a ruling letter dated October 1, 1984, Public Document No. 84-172 (copy attached). I apologize for the delay in responding.
In your letter you state that the amounts shown on your client's original loss year return as allocable income should be shown as subtractions to Virginia Taxable Income. The difference between treating an item as a subtraction and income allocable to another state has no impact on the loss year taxable income. However, when a federal Net operating Loss Deduction (NOLD) is carried to another year, Virginia additions and subtractions are carried with the NOLD while allocable income is not.
The items you claim were improperly characterized in the original return are various amounts of Foreign Source Income (royalties, interest and dividends), §78 gross up dividends and dividends from corporations in which the taxpayer owns more than 50% of the voting power.
The items shown are properly included in federal taxable income and subtracted in computing Virginia Taxable Income. However, foreign source income is not a subtraction of gross income. The amount of the subtraction must be reduced by expenses, determined under Internal Revenue Code §§861-863. See the Ruling Letter dated August 14, 1986, P.D. No. 86-154 (copy attached).
We have reviewed your figures and the federal form 1118 and recomputed the refund due as shown on the attached sheets. You will shortly receive a refund of the tax shown plus accrued interest.
You have also asked about the period within which your client may apply to a court under §58.1-1825. Under §58.1-1823 the denial of an amended return claiming a refund is treated as an assessment for purposes of applying to the courts under §58.1-1825 and to the Tax Commissioner under §§58.1-1821 and 58.1-1824. Your client filed the amended return on September 12, 1983. By letter dated April 27, 1984, your client was advised that no refund was due. Your client promptly protested the denial on June 7, 1984, which was treated as an application under §58-1118 (since recodified as §58.1-1821). The October 1, 1984, ruling letter was in response to that application. Therefore the three year period for applying starts from our April 27, 1984 denial of the refund claim.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner