Tax Type
Corporation Income Tax
Description
Internal Revenue Code § 338(h)(10) election
Topic
Computation of Income
Date Issued
05-28-1992
May 28, 1992
Re: Ruling Request: Corporation Income Taxes
Dear ****
This will reply to your letter dated May 25, 1990 in which you wish to determine the Virginia income tax treatment of an Internal Revenue Code (I.R.C.) § 338(h)(10) election for * * * Taxpayer").
FACTS
The taxpayer recently acquired a company (the target), and has elected, with the selling group, to apply the provisions of I.R.C. § 338(h)(10) to the purchase of the target's stock. As a result of this federal election, a series of fictitious steps is deemed to have occurred:
- The target is deemed to have sold its assets, recognizing gain or loss that must be included in the selling group's consolidated federal return;
- The target is deemed to have distributed all its assets in a complete liquidation to which I.R.C. § 332 applies;
- Any gain or loss on the sale of target stock incurred by the selling group is ignored.
RULING
Virginia conforms to federal taxable income as the starting point for calculating the income tax. Therefore, Virginia's treatment of the I.R.C. § 338(h)(10) election will mirror federal treatment as closely as possible, while ensuring that any Virginia tax accurately reflects the business activity in Virginia.
An in-depth explanation of Virginia's policy toward the federal I.R.C. § 338(h)(10) election is contained in Public Document 91-317 (12/30/91) (copy attached). This public document goes into detail concerning the effect of this election on the Virginia apportionment factors, and describes certain administrative effects of an I.R.C. § 338(h)(10) election.
If you have further questions, please do not hesitate to write.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner