Virginia Department of Taxation
IMPORTANT INFORMATION REGARDING
December 31, 2006
Effective for taxable years beginning on and after January 1, 2006, Virginia’s fixed-date of conformity to the terms of the Internal Revenue Code will advance from December 31, 2005, to December 31, 2006 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.
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 2006, a provision was enacted that fixed Virginia’s conformity to Internal Revenue Code terminology to the Internal Revenue Code as it existed on December 31, 2005. Because of changes in federal law since that date, including those contained in the Tax Increase Prevention and Reconciliation Act of 2005, the Pension Protection Act of 2006, and the Tax Relief and Health Care Act of 2006, 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 2006 income tax return. This bulletin will instruct taxpayers about which fixed-date conformity adjustments are still necessary for their 2006 income tax returns, if applicable.
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.
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, 12 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.
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.
Individuals
Individuals who have already filed a 2006 individual income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2006 Virginia individual income tax return. Amended individual income tax returns are filed using the 2006 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 2006 corporation income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2006 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 2006 individual income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2006 Virginia fiduciary income tax return. Amended fiduciary income tax returns are filed using the 2006 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.