Tax Type
Corporation Income Tax
Individual Income Tax
Description
S corporation; Nonresident partners; Unified individual income tax return
Topic
Returns/Payments/Records
Date Issued
01-24-1988
January 24, 1988
Re: Request for Ruling/Individual Income Tax
Nonresident Shareholders
Dear****************
This is in reply to your recent letter 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. Company has elected to be taxed as an S corporation under the Internal Revenue Code. Company has 29 shareholders that are nonresidents of Virginia. In order to relieve Company's individual shareholders of the responsibility of filing Virginia nonresident individual income tax returns, you request permission to attach a schedule indicating the name, i.d. number, percent of ownership and ordinary income of each shareholder to the corporate return. You would include a check for the full tax liability due at the highest individual rate with 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. Similarly, the department has granted permission to nonresident S corporations to file unified nonresident individual income tax returns.
Pursuant to this regulatory authority, the department has developed "standard" requirements, which are imposed with very little deviation upon all companies which request permission to file such a return on behalf of their Virginia nonresident shareholders. These "standard" requirements were developed in order to minimize the administrative burden of both the company and the department and to ensure compliance with the laws of this Commonwealth. These same basic requirements are imposed upon all companies requesting permission to file a unified return in order that equal treatment is assured. Accordingly, the department finds your proposal unacceptable.
Companies are under no obligation to file such a unified return. Bach company should examine the option of filing a unified return on behalf of its nonresident shareholders, based upon the requirements of the department and the effect of these requirements on their shareholders. While it may be beneficial for one company to file such a return for its shareholders, it may not be beneficial for another company to file such a return.
The department will allow Company to file a unified individual income tax return on behalf of its 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.
Company is required to file Form 763, Virginia Nonresident Income Tax Return (copy enclosed) on behalf of its nonresident shareholders. Company will list its name on the return and attach the information as required above to Form 763.
If the above is acceptable, Company may commence the unified filing under the above conditions effective for taxable 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 filing exceptions 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