Tax Type
Corporation Income Tax
Description
Amended returns; Taxable income
Topic
Statute of Limitations
Subtractions and Exclusions
Taxable Income
Date Issued
07-06-1988
July 6, 1988
Re: §58.1-1821 Application, Corporation Income Tax
§58.1-1823 Amended Return; Statute of Limitations
§58.1-402 Virginia Taxable Income
Dear***************
This is in response to your letter of January 25, 1988, in which you applied for correction of an assessment of corporation income tax. I apologize for the delay in responding. In your application you raised a number of issues which will be reviewed in the order raised.
Domestic International Sales Corporation
The auditor adjusted the tax pursuant to §58.1-446 to include a Domestic International Sales Corporation (DISC). In your application you stated "The Taxpayer elects at this time to not remit the assessment pending a final decision in the General Electric case."
The department cannot allow an assessment of tax which it firmly believes is valid to remain unpaid for an extended period of time. If you wish to preserve your judicial remedies, §58.1-1824 permits you to file a protective claim claiming a refund which the department would hold without action pending a final decision in the General Electric case. As an alternative you may, at your election, file an application with the circuit court. In either case the assessment must be paid in full and the filing made within three years of the assessment.
Virginia law contains no provision extending or tolling the statute of limitations on a court application while an application under §58.1-1821 is pending on an unpaid assessment. Thus, if you fail to pay the assessment any right you may have to file a protective claim or to have the assessment reviewed by a court will expire three years after the date of the assessment.
Pension and Profit-sharing Deductions
The auditor did not allow certain deductions for contributions made to pension and profit-sharing plans because they appeared among the consolidation adjustments to the consolidated federal return. The taxpayer has separate pro-forma federal returns prepared by an outside computer service which assume that a deductible contribution will be made to a pension plan before the federal return is due. Shortly before the federal returns are filed a decision is made about actual contributions to pension and profit-sharing plans, which may be different from the amounts included in the separate pro-formas. Instead of revising the pro-forma for each member of the affiliated group, any adjustments to increase or decrease deductible contributions are included among the consolidation adjustments.
The taxpayer files a consolidated federal return and a separate Virginia return. Therefore, federal taxable income for Virginia purposes must be determined as if a separate federal return had been filed. We have reviewed the adjustments and a member of my staff discussed them with you. We are now persuaded that the adjustments would be allowable as deductions on a separate federal return. The audit report will be revised to reduce federal taxable income for Virginia purposes by the amount of contributions to pension and profit-sharing plans.
Net Operating Loss Deductions
The taxpayer has reviewed its net operating loss deductions and submitted a schedule showing the federal taxable income and loss for all prior years which affect, or are affected by, the federal taxable income (loss) of the years in question. The years which are the subject of this application were the first taxable years in which the taxpayer was subject to Virginia income tax. Net operating loss deductions attributable to prior years (but not before 1972) are allowable in computing federal taxable income for Virginia purposes provided that the computations are in accordance with Virginia law and policy for all taxable years involved. Thus, each year's federal taxable income or loss must be computed with the DISC adjustment. Upon receipt of this information the audit report will be adjusted.
Sales Factor
The auditor adjusted the sales for the sales factor to reconcile to your detail analysis. You have reviewed your detail analysis and note a number of adjustments which should be made, e.g., detail workpapers for one plant did not include sales to subsidiaries. The adjustments reconcile to the gross sales less returns and allowances reported on the return. We will accept your adjustments and revise the audit report accordingly.
Amended Returns
Amended federal returns have been filed which reduce income for 1983 (by increasing the loss incurred) and increase income for 1984. However, it appears that the information was not reported to Virginia as required by §58.1-311. Although the audit was conducted after the amended federal returns were filed, and copies of all amended federal returns were requested by the auditor, it appears that they were not provided.
No tax has been paid for 1983, and none will be due after the adjustments required by this letter have been made. From the information available, it appears that the 1983 loss cannot be carried back but may be available in future years as a net operating loss carryforward. (The actual situation depends on the federal taxable income (loss) including the DISC adjustments mentioned above.)
Under §58.1-1823 an amended return claiming a refund must be filed within three years of the due date of the return or, if later, within 60 days of the date of a change in federal taxable income. The information was first reported to Virginia in your letter of January 25, 1988. Even if we treat the letter as an "amended return" it was filed long after the period for filing had expired. Therefore, no refund can be allowed which is attributable to the amended federal return for 1983.
ESOP Credit
In the years in question contributions were made to an Employee Stock Ownership Plan (ESOP) and a credit was claimed on the federal consolidated return. The contributions were reported in a detail statement related to Schedule M-1 of the taxpayer's separate pro-forma return. Although the detail statement was not filed with the copy of the federal return attached to the Virginia return, the information was available during the audit. The audit report will be revised to allow a subtraction on the Virginia returns for contributions to an ESOP.
1986 Loss
In a conversation with a member of my staff you stated that a significant loss was incurred in 1986 which, when carried back to 1983 and 1984, will eliminate any tax which may be due. Interest, of course, would accrue on any tax liability between the due dates of the returns in question and the due date of the loss year. You should file form 500-NOLD to claim the loss carryback.
Determination
Accordingly, the audit report will be revised upon receipt of the necessary information on the net operating loss deductions. The information should be provided to******Supervisor, Technical Services Section, Virginia Department of Taxation, P. o. Box 6-L, Richmond, VA 23282. After receipt of this information you will receive a revised audit report and an updated bill for any tax or interest due. The bill should be paid within thirty days to avoid the accrual of additional interest. Although you requested a conference, this letter has been issued without one because the application of the law is clear. If you still desire a conference you should request one within thirty days.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner