Tax Type
Corporation Income Tax
Description
LIFO inventory adjustment
Topic
Accounting Periods and Methods
Date Issued
04-12-1990
April 12, 1990
Re: Request for Ruling/Corporate Tax
Dear********************
This will reply to your letter dated July 5, 1989 in which you request a ruling on the taxability for Virginia income tax purposes of a last in, first out, (LIFO) inventory adjustment under I.R.C. §1363(d).
FACTS
Under I.R.C. §1363(d), a C corporation that maintains an inventory using the LIFO method in its last year before electing S corporation status, must include a LIFO recapture amount in gross income for its last taxable year as a C corporation. The tax attributable to the inclusion of any LIFO recapture amount is payable by the corporation in four equal installments as provided in I.R.C. §1363(d)(2). The first payment is due with the corporation's last tax return as a C corporation and the three subsequent installments are due with the S corporation returns for the three succeeding tax years. Because the Virginia Code and regulations are silent on this issue, you are requesting that a taxpayer be allowed to pay the Virginia tax liability resulting from the LIFO recapture amount over the four equal installments similar to that provided in I.R.C. §1363(d)(2).
RULING
The taxable income of a corporation in Virginia means "the federal taxable income and any other income taxable to the corporation under federal law for such year of a corporation", as defined under Va. Code §58.1-402. See also VR 630-2-402 (copy enclosed). Further, Va. Code §58.1-455 states that the full amount of the tax payable as shown on the face of the return shall be paid at that time. The LIFO recapture amount required under I.R.C. §1363 is included in the C corporation's last taxable year as income and is therefore taxable in Virginia in the last taxable year of the C corporation. The Virginia Code does not provide for the installment method of payment of the tax liability as provided in I.R.C. §1363(d)(2) and requires that the t ax due as a result of the election of the C corporation to convert to S corporation status be paid at the time fixed by law for filing the return. Further, because S corporations are not subject to this state's corporate income tax and file an informational return to report the pro rata share of Virginia source income that the shareholders must report on their individual income tax returns for Virginia purposes, the state would not be able to track the subsequent installment payments of the S corporation resulting from the LIFO recapture amount.
Accordingly, the tax imposed upon the LIFO recapture amount as a result of the C corporation's election to convert to S corporation status under I.R.C. §1363 is due and payable at the time of filing the C corporation's tax return as set forth in Va. Code §58.1-455.
If you have any further questions, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner