Tax Type
Corporation Income Tax
Description
Tax Treatment of Unwanted Assets
Topic
Basis of Tax
Computation of Tax
Taxability of Persons and Transactions
Date Issued
11-30-2001
November 30, 2001
Re: Request for Ruling: Corporate Income Tax
Dear *****
This will reply to your letter in which you request a ruling on the Virginia corporate income tax treatment for a future transaction that will be made in accordance with Internal Revenue Code (I.R.C.) § 338(h)(10).
FACTS
The parent corporation ("Seller") is incorporated outside of Virginia and owns 100% of the stock of the target corporation ("Target"), which is also incorporated outside of Virginia. The Seller wishes to sell 100% of the Target stock to an unrelated corporation ("Buyer"). However, the buyer does not wish to acquire all of Target's assets. Therefore, the Seller has agreed to acquire the unwanted assets from Target and sell the stock to the Buyer. The Seller and Buyer will join in an election pursuant to I.R.C. § 338(h)(10) where the transaction will be treated for federal income tax purposes as if Target has sold its assets to the Buyer and distributed the proceeds to the Seller in complete liquidation.
You have requested a ruling as to how Virginia would treat the Seller's acquisition of the unwanted assets in this transaction in regards to the corporate income tax.
RULING
Virginia conforms to federal taxable income as the starting point for calculating the corporate 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.
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 details the effect of the I.R.C § 338(h)(10) election on Virginia conformity and apportionment factors and explains certain administrative effects.
In regards to the specific set of facts in your letter, Virginia would treat the Seller's acquisition of the unwanted assets as part of the complete liquidation under I.R.C. § 388(h)(10) if such a treatment is allowed for federal purposes.
This ruling has been made subject to the facts presented to the department as summarized above. Any change in these facts or the introduction of facts by another party may lead to a different result. If you have any additional questions regarding this ruling, please call ***** in Policy Development at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/32724G
Rulings of the Tax Commissioner