Tax Type
Income Tax
Description
Fixed Date Conformity Update
Topic
Computation of Income
Date Issued
03-16-2006
TAX BULLETIN 06-1
Virginia Department of Taxation
March 16, 2006
Virginia Department of Taxation
March 16, 2006
IMPORTANT INFORMATION REGARDING
2005 VIRGINIA INCOME TAX RETURNS
VIRGINIA INCOME TAX FIXED-DATE CONFORMITY ADVANCED TO DECEMBER 31, 2005
2005 VIRGINIA INCOME TAX RETURNS
VIRGINIA INCOME TAX FIXED-DATE CONFORMITY ADVANCED TO DECEMBER 31, 2005
Under emergency legislation passed by the 2006 General Assembly and signed by Governor Kaine, Virginia’s fixed-date of conformity to the terms of the Internal Revenue Code will advance from January 7, 2005 to December 31, 2005. Virginia will, however, continue to disallow any bonus depreciation allowed for certain assets under federal income taxation and any 5 year carry-back of net operating losses (“NOL”) allowed for NOLs generated in either taxable year 2001 or 2002. This notice is intended to provide taxpayers with directions on how to reconcile this legislation on their 2005 Virginia income tax returns.
Effective for taxable years beginning on and after January 1, 2005, Virginia’s fixed-date of conformity to the terms of the Internal Revenue Code will advance from January 7, 2005, to December 31, 2005 with two exceptions. Virginia will continue to disallow any bonus depreciation allowed for certain assets under federal income taxation and any 5 year carry-back of net operating losses (“NOL”) allowed for NOLs generated in either taxable year 2001 or 2002. Virginia, however, will conform to all other previously enacted provisions under federal income tax law.
VIRGINIA INCOME TAX
For some twenty years, Virginia conformed to federal income tax law. Whenever federal income tax law changed, the changes automatically affected Virginia income taxes, unless otherwise exempted. In 2003, Virginia began a period of fixed conformity moving the date each year. In 2005, a provision was enacted that fixed Virginia’s conformity to Internal Revenue Code terminology to the Internal Revenue Code as it existed on January 7, 2005. Because of changes in federal law since that date, including those contained in the Energy Tax Incentives Act of 2005, the Katrina Emergency Tax Relief Act of 2005, and the Gulf Opportunity Zone Act of 2005, some taxpayers would have had to make adjustments to their federal adjusted gross income or federal taxable income through the fixed-date conformity adjustments on the 2005 income tax return. This bulletin will instruct taxpayers about which fixed-date conformity adjustments are still necessary for their 2005 income tax returns, if applicable.
Special Instructions for Taxpayers
Taxpayers Who Have Not Yet Filed
Taxpayers Who Have Not Yet Filed
Individuals
Individuals who have a special, fixed-date conformity adjustment for bonus depreciation are still required to make the corresponding adjustments described on Pages 16 through 18 of the Instructions for Form 760. In addition, if the federal bonus depreciation has an effect on any other item included in federal adjusted gross income, an adjustment must still be made as either an addition (refer to Line B of Page 17) or as a subtraction (refer to Line B of Page 18) on Form 760. Individuals who are required to make a fixed-date conformity adjustment may use the worksheet provided on Page 11 of the Form 760 Instructions to assist them in calculating the amount of the adjustment. The worksheet should not be filed with the Virginia return.
Katrina Emergency Tax Relief Act of 2005
Generally, for individuals, contributions to tax-exempt charitable organizations are limited to fifty percent of the taxpayer’s adjusted gross income (“AGI”) for the tax year. This Act removed the fifty percent limitation for all cash donations to a charitable organization for the period beginning on August 28, 2005, and ending on December 31, 2005. The Act also exempted charitable donations from the application of the phase-out of itemized deductions for high-AGI taxpayers.
Part-Year or Nonresident Individuals
For individuals who must file either a Form 760PY Part-Year Resident Individual Income Tax Return or a Form 763 Nonresident Individual Income Tax Return, the changes explained for individuals apply. The corresponding fixed-date conformity instructions for part year residents are located on Pages 14 and 15 of the Form 760PY Instructions. The corresponding fixed-date conformity instructions for nonresidents are located on Pages 11 and 15 of the Form 763 Instructions.
Corporations
Corporations that have not yet filed their income tax returns should only make special, fixed-date conformity adjustments relating to the bonus depreciation. Adjustments relating to the bonus depreciation are entered on Lines 2a and 4a of Form 500 and explained on Pages 4 and 5 of the Form 500 Instructions. In addition, if the federal bonus depreciation has an effect on any other item included in federal taxable income, an adjustment is still required to be made as either an addition on Line 2b or as a subtraction on Line 4b of Form 500.
Katrina Emergency Tax Relief Act of 2005
The charitable contribution deduction for a corporation is generally limited to ten percent of its taxable income for the year in which the contribution was made. This Act waived the ten percent limitation on cash donations made by corporate donors for Hurricane Katrina to a charitable organization during the period beginning on August 28, 2005, and ending on December 31, 2005.
Gulf Opportunity Zone Act of 2005
This Act expanded the waiver of the limit on charitable contribution deductions for corporations to include contributions made for Hurricane Rita and Hurricane Wilma.
Pass-Through Entities and Fiduciaries
For pass-through entities filing Form 502, adjustments relating to the bonus depreciation are described on Pages 5 and 6 of the Form 502 Instructions. The adjustments relating to bonus depreciation are entered on Lines 8 and 14 of Form 502. In addition, if the federal bonus depreciation has an effect on any other item included in federal taxable income, an adjustment is still required to be made as either an addition on Line 9 or a subtraction on Line 15 of Form 502.
Fiduciaries who have a special, fixed-date conformity adjustment for bonus depreciation are still required to make the corresponding adjustments that are described on Page 8 of the Instructions for Form 770. In addition, if the federal bonus depreciation has an effect on any other item included in federal taxable income, an adjustment is still required to be made as either an addition (refer to Line 3b of Page 8 of the 770 Instructions) or as a subtraction (refer to Line 8b of Page 8 of the 770 Instructions).
Treatment of the 5-Year Net Operating Loss Carryback
The treatment of any 5-year net operating loss carryback is not affected by the legislation advancing Virginia’s conformity date. All taxpayers should follow the instructions given in Virginia Tax Bulletin 03-1 regarding any necessary adjustment for a 5-year net operating loss carryback.
Taxpayers Who Have Already Filed
Individuals
Individuals who have already filed a 2005 individual income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2005 Virginia individual income tax return. Amended individual income tax returns are filed using the 2005 Form 760 by filling in the oval at the top of Page 1 to indicate that the return is an amended return. Taxpayers should fill out the form completely and disregard those fixed-date conformity additions and subtractions explained above. Also, any taxpayer filing an amended return should follow the special instructions for amended returns on Page 25 of the Form 760 Instructions.
Part-Year or Nonresident Individuals
For nonresidents, instructions for filing an amended return are found on Page 3 of the Form 763 Instructions. Instructions for part-year residents filing an amended return are found on Page 4 of the Form 760PY Instructions.
Corporations
Corporations that have already filed a 2005 corporation income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2005 Virginia corporation income tax return.
For Form 500 filers, amended returns are filed using Form 500X, the Amended Virginia Corporation Income Tax Return. Corporate income taxpayers should follow the instructions for Form 500X and recompute the proper fixed-date conformity adjustment, if any, and report the corrected amount as a change in Net Virginia Modifications on Line 2, Column B.
Pass-Through Entities and Fiduciaries
For pass-through entities filing Form 502, amended returns are filed using the Form 502 by checking the amended return box located at the top of Page 1 to the left of the name and address section. Taxpayers should fill out the form completely as if it were the original return and recompute the proper fixed-date conformity adjustments explained above.
Fiduciaries that have already filed a 2005 individual income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2005 Virginia fiduciary income tax return. Amended fiduciary income tax returns are filed using the 2005 Form 770 by checking the amended return box located at the top of Page 1 above the Locality box. Taxpayers should fill out the form completely as if it were the original return and recompute the proper fixed-date conformity adjustments. Also, any taxpayer filing an amended return should follow the special instructions for amended returns on Page 2 of the Form 770 Instructions.
If you have additional questions, please visit our website at http://www.tax.virginia.gov, or contact us at (804) 367-8031 for individual income tax questions or (804) 367-8037 for corporate income tax questions.
Rulings of the Tax Commissioner