Tax Type
Individual Income Tax
Partnerships
Description
Request to file a Consolidated Return
Topic
Constitutional Provisions
Corporate Distributions and Adjustments
Date Issued
09-08-2004
September 8, 2004
Re: Request for Ruling: Individual Income Tax Alternative Filing Method
Dear *****:
This will reply to your letter submitted on behalf of ***** ("LLP A”), ***** (“LLP B"), and ***** ("LLP C"), collectively, the "Group," in which you request permission to use an alternative method for filing unified nonresident individual income tax returns on behalf of their respective partners for the taxable year ending June 1, 2002. I apologize for the delay in responding to your letter.
LLP A is a multistate limited liability partnership that is treated as a partnership for federal and Virginia income tax purposes. LLP A has numerous individual partners and one nonindividual partner, LLP C.
LLP B is a multistate partnership that is treated as a partnership for federal and Virginia income tax purposes. During 2002, LLP B was in the business of providing consulting services for clients throughout the United States. LLP B has numerous individual partners and one nonindividual partner, LLP C.
LLP C is a multistate partnership that is treated as a partnership for federal and Virginia income tax purposes. LLP C is the partnership holding entity of LLP A and LLP B. All of LLP C's partners are individuals that are also in either LLP A or LLP B.
For a number of years, many of the LLP A and LLP B partners have satisfied their Virginia income tax filing responsibilities via unified income tax returns. LLP A, LLP B and LLP C each have been filing separate unified income tax returns.
All of the partnerships have taxable years ending at the same time. For the taxable year ended June 1, 2002, LLP A and LLP B will report taxable income. LLP C anticipates that it will report a taxable loss.
In order to simplify the filing requirements of the LLP A and LLP B partners and eliminate unnecessary expense and effort for them in filing their Virginia individual income tax returns, you request approval of the following for taxable years ending on and after June 1, 2002:
Title 23 of the Virginia Administrative Code ("VAC") 10-130-20(C)(2) provides that the Tax Commissioner may grant permission to partnerships to file a statement of combined partnership income attributable to nonresident partners. The permission is granted based upon such terms as the parties may agree. This provision of the regulations relieves the nonresident partners of the responsibility for filing nonresident individual income tax returns.
Currently, each of the three partnerships files a separate unified return. You request permission for LLP A and LLP B to file unified returns, each of which would include income that their respective partners receive from LLP C. In such a filing, income reported on each return would include only the income apportioned by the applicable partnership to its nonresident partners.
A unified return is an administrative convenience that allows nonresident partners to pay their respective Virginia tax at the entity level. The need for filing a separate Virginia return for each partner is also eliminated. It is a privilege extended by the Department to taxpayers, at the taxpayer's election. The convenience to the nonresident partners usually outweighs any benefits that may be lost. Certain conditions are imposed in exchange for such convenience. The Department must balance the convenience provided by unified returns to nonresident partners against the administrative burden that would be imposed if all nonresidents were not included in the return. A departure from this condition would cause the Department to incur significantly more administrative burdens as a result of the convenience it would extend to unified filers.
In the situation presented by the three partnerships at issue, approval of the proposed filing method would result in a total reduction in filings. However, the associated administrative burden to be borne by the Department must also be considered. The Department's record keeping and processing systems are based, in part, on the concept of one filer's income being reported and taxed on one return rather than on multiple returns.
It is always the Department's duty and responsibility to collect uniformly the proper tax due from each taxpayer. Because a unified return may combine the Virginia taxable income for hundreds of nonresident taxpayers, the conditions established by the Department for unified return filing must be followed to ensure the proper determination, administration, and collection of Virginia's tax. These conditions are uniformly required for all unified returns and are a necessary part of the Department's administration of these returns. The conditions that have been imposed for unified filing are fairly and consistently applied.
You have requested approval for LLP A and LLP B to file unified tax returns that would include nonresident partners having income from more than one source in Virginia. As explained above, such filings would not conform to the Department's requirements for filing a unified tax return. The partners that have income from both LLP A and LLPC, or LLP B and LLP C, are not eligible to be included in a unified return. Accordingly, permission to use the proposed alternative method for filing unified nonresident individual income tax returns is denied.
As previously noted, the Department has consistently required that a unified return reflect only the income or loss attributable to nonresident partners who have no income from sources other than income attributable to the partnership. Based on the information provided, it appears that the partnerships have been filing returns that do not conform to the Department's guidelines for unified returns. Notwithstanding this fact, I will not require amended returns for taxable years ended June 1, 2001 or earlier, because the tax has been paid. I would note that these returns remain subject to audit by the Department.
The Code of Virginia sections cited in this letter, along with other reference documents, are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.state.va.us. If you have any questions regarding this ruling, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
AR/44741E
Re: Request for Ruling: Individual Income Tax Alternative Filing Method
Dear *****:
This will reply to your letter submitted on behalf of ***** ("LLP A”), ***** (“LLP B"), and ***** ("LLP C"), collectively, the "Group," in which you request permission to use an alternative method for filing unified nonresident individual income tax returns on behalf of their respective partners for the taxable year ending June 1, 2002. I apologize for the delay in responding to your letter.
FACTS
LLP A is a multistate limited liability partnership that is treated as a partnership for federal and Virginia income tax purposes. LLP A has numerous individual partners and one nonindividual partner, LLP C.
LLP B is a multistate partnership that is treated as a partnership for federal and Virginia income tax purposes. During 2002, LLP B was in the business of providing consulting services for clients throughout the United States. LLP B has numerous individual partners and one nonindividual partner, LLP C.
LLP C is a multistate partnership that is treated as a partnership for federal and Virginia income tax purposes. LLP C is the partnership holding entity of LLP A and LLP B. All of LLP C's partners are individuals that are also in either LLP A or LLP B.
For a number of years, many of the LLP A and LLP B partners have satisfied their Virginia income tax filing responsibilities via unified income tax returns. LLP A, LLP B and LLP C each have been filing separate unified income tax returns.
All of the partnerships have taxable years ending at the same time. For the taxable year ended June 1, 2002, LLP A and LLP B will report taxable income. LLP C anticipates that it will report a taxable loss.
In order to simplify the filing requirements of the LLP A and LLP B partners and eliminate unnecessary expense and effort for them in filing their Virginia individual income tax returns, you request approval of the following for taxable years ending on and after June 1, 2002:
- 1. Permission for LLP A's partners to file a single unified Virginia return, reporting each partner's income or loss from LLP A and LLP C. The unified return will include all of the eligible partners who elect to be included.
- 2. Permission for LLP B's partners to file a single unified Virginia return, reporting each partner's income or loss from LLP B and LLP C. The unified return will include all of the eligible partners who elect to be included.
- 3. Partners included in either unified return who are reporting all of their Virginia income on unified returns will not be required to report their share of income from any of the entities on a separate return filed with the Department.
- 4. Tax payments paid by LLP C will be allocated between LLP A and LLP B.
RULING
Title 23 of the Virginia Administrative Code ("VAC") 10-130-20(C)(2) provides that the Tax Commissioner may grant permission to partnerships to file a statement of combined partnership income attributable to nonresident partners. The permission is granted based upon such terms as the parties may agree. This provision of the regulations relieves the nonresident partners of the responsibility for filing nonresident individual income tax returns.
Currently, each of the three partnerships files a separate unified return. You request permission for LLP A and LLP B to file unified returns, each of which would include income that their respective partners receive from LLP C. In such a filing, income reported on each return would include only the income apportioned by the applicable partnership to its nonresident partners.
A unified return is an administrative convenience that allows nonresident partners to pay their respective Virginia tax at the entity level. The need for filing a separate Virginia return for each partner is also eliminated. It is a privilege extended by the Department to taxpayers, at the taxpayer's election. The convenience to the nonresident partners usually outweighs any benefits that may be lost. Certain conditions are imposed in exchange for such convenience. The Department must balance the convenience provided by unified returns to nonresident partners against the administrative burden that would be imposed if all nonresidents were not included in the return. A departure from this condition would cause the Department to incur significantly more administrative burdens as a result of the convenience it would extend to unified filers.
In the situation presented by the three partnerships at issue, approval of the proposed filing method would result in a total reduction in filings. However, the associated administrative burden to be borne by the Department must also be considered. The Department's record keeping and processing systems are based, in part, on the concept of one filer's income being reported and taxed on one return rather than on multiple returns.
It is always the Department's duty and responsibility to collect uniformly the proper tax due from each taxpayer. Because a unified return may combine the Virginia taxable income for hundreds of nonresident taxpayers, the conditions established by the Department for unified return filing must be followed to ensure the proper determination, administration, and collection of Virginia's tax. These conditions are uniformly required for all unified returns and are a necessary part of the Department's administration of these returns. The conditions that have been imposed for unified filing are fairly and consistently applied.
You have requested approval for LLP A and LLP B to file unified tax returns that would include nonresident partners having income from more than one source in Virginia. As explained above, such filings would not conform to the Department's requirements for filing a unified tax return. The partners that have income from both LLP A and LLPC, or LLP B and LLP C, are not eligible to be included in a unified return. Accordingly, permission to use the proposed alternative method for filing unified nonresident individual income tax returns is denied.
As previously noted, the Department has consistently required that a unified return reflect only the income or loss attributable to nonresident partners who have no income from sources other than income attributable to the partnership. Based on the information provided, it appears that the partnerships have been filing returns that do not conform to the Department's guidelines for unified returns. Notwithstanding this fact, I will not require amended returns for taxable years ended June 1, 2001 or earlier, because the tax has been paid. I would note that these returns remain subject to audit by the Department.
The Code of Virginia sections cited in this letter, along with other reference documents, are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.state.va.us. If you have any questions regarding this ruling, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/44741E
Rulings of the Tax Commissioner