05-65 | Virginia Tax

Tax Type

Individual Income Tax

Description

Unified nonresident individual income tax returns

Topic

Clarification

Partnerships

Date Issued

04-26-2005

April 26, 2005

Re: Ruling Request: Individual Income Tax

Dear *****:

This is in reply to your letter requesting a ruling concerning the unified Virginia nonresident individual income tax return of ***** (the "Taxpayer"). I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is a partnership based outside of Virginia but is registered to do business in Virginia. They have requested and received permission from Virginia to file unified nonresident individual income tax returns on behalf of the nonresident partners of the partnership. One of the conditions for filing this unified return provides that:

- All nonresident partners 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.

In order to comply with this condition, the Taxpayer must include partners who have departed from the firm during the fiscal year. Because of the hardship of obtaining information from departed partners concerning their income from Virginia sources, the Taxpayer is requesting permission to exclude departed partners from the unified return.

RULING

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 eliminated. It is a privilege extended by the Department to taxpayers at the taxpayers' election. The convenience to the nonresident partners usually outweighs any benefits that may be lost.

Legislation was enacted in 2004 requiring all pass-through entities ("PTE"), including partnerships, to file information returns and expressly authorizes the filing of unified nonresident returns. The Department is in the process of designing new forms for the PTE and unified nonresident returns. However, at present the standard conditions for unified nonresident returns are expected to continue to apply, except that advance permission may no longer be required.

The Taxpayer contends that Virginia's requirement to include all nonresidents with no Virginia income from sources other than the PTE, including departed partners, imposes a significant hardship on them. The final share of a departed partner's income and capital account balance are distributed to them at the time of their departure or shortly thereafter. Afterward, the departed partners are no longer subject to the rules of the Taxpayer's partnership agreement. The Taxpayer, therefore, cannot require the departed partners to inform the partnership whether they have other income from Virginia sources.

The Department recognizes the difficulty in complying with the requirement to include departed partners in the unified return when they are not responsible for providing information to the partnership on their other income from Virginia sources. To clarify the Department's policy, therefore, if the Taxpayer is not able to obtain this information from a departed partner, they may exclude that departed partner from the unified return. It should be noted that the new information return that must be filed by the PTE will include the appropriate information for all current and former partners to whom any Virginia source income is attributed for the taxable year.

The Taxpayer contends that when they remit estimated tax payments during the year on behalf of the nonresident departed partners, these payments cannot be recovered from the Department or the departed partners. Your use of the word "recover" suggests that the partnership is advancing the estimated payments on behalf of the nonresident partners, and reconciles the amounts with the partners' accounts when the unified nonresident return is filed.

At the time a PTE makes an estimated payment in connection with a unified nonresident return, the Department does not assign the payment to individual accounts of each nonresident partner. That assignment cannot be made until the unified nonresident return is filed and full details are provided. Each installment payment of the estimated tax made by the partnership on behalf of its nonresident partners may be adjusted to account for changes in the number of partners to be included in the unified nonresident return as well as partnership income. If departures after the final installment payment result in an overpayment, the overpayment will be refunded. Therefore, fluctuation in the number of partners to be included in a unified nonresident return should not cause a problem with the Department. How you account for these payments among the current and former partners is a matter resolved by your partnership agreement and internal procedures.

Reference documents and forms are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.virginia.gov. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Policy Development, at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

COMMONWEALTH of VIRGINIA
Department of Taxation

- - - - TO WHOM IT MAY CONCERN:

Under the authority of §§ 58.1-1 and 58.1-110 of the Code of Virginia, I hereby delegate to Gerald Gwaltney, Deputy Tax Commissioner, the authority to sign for me, in my absence, any and all documents, including, but not limited to, affidavits, warrants, rulings, appeals, offers in compromise and sales tax revocations.

This authority shall not extend to matters or documents related to my service on any statutorily created board or commission, including, but not limited to, the Compensation Board and Treasury Board.

This authority shall become effective January 10, 2003, and shall remain in effect until revoked.

Done at Richmond, Virginia, this 13th day of January 2003.

Kenneth W. Thorson
Tax Commissioner

Acknowledgement: Gerald H. Gwaltney Date:

Done this 13th day of January 2003 in the City of Richmond, State of Virginia. My Commission expires 9-30-2003.

Sylvia Wesson
Notary Public Notary Seal

Rulings of the Tax Commissioner