Document Number
08-14
Tax Type
General Provisions
Description
2007 Virginia Income Tax Returns, Federal Conformity,
Topic
Federal Conformity
Taxable Income
Taxpayers' Remedies
Date Issued
02-06-2008

TAX BULLETIN 08-1
Virginia Department of Taxation
February 6, 2008
IMPORTANT INFORMATION REGARDING
2007 VIRGINIA INCOME TAX RETURNS



VIRGINIA INCOME TAX FIXED-DATE CONFORMITY ADVANCED TO DECEMBER 31, 2007



Under emergency legislation (House Bill 912; Chapter 1 of the 2008 Acts of Assembly) passed by the 2008 General Assembly and signed by Governor Kaine, Virginia’s fixed-date of conformity to the terms of the Internal Revenue Code will advance from December 31, 2006 to December 31, 2007. 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 2007 Virginia income tax returns.


Effective for taxable years beginning on and after January 1, 2007, Virginia’s fixed-date of conformity to the terms of the Internal Revenue Code will advance from December 31, 2006, to December 31, 2007 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 approximately 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 2007, 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, 2006. Because of changes in federal law since that date, 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 2007 income tax return. This bulletin will instruct taxpayers about which fixed-date conformity adjustments are still necessary for their 2007 income tax returns, if applicable.

Federal Legislation


By advancing Virginia’s date of conformity to December 31, 2007, Virginia fully conforms to three significant measures enacted by Congress since December 31, 2006 that affect income taxation in Virginia:
    The Small Business and Work Opportunity Tax Act of 2007, which increases and extends § 179 expensing and provides several other tax breaks for small businesses;

    House Resolution 4118, which excludes income received from Virginia Tech University out of amounts transferred from the Hokie Spirit Memorial Fund if such amounts were paid on account of the tragic event on April 16, 2007; and

    The Tax Mortgage Forgiveness Debt Relief Act of 2007, which creates an exception to current law so that certain homeowners do not have to pay taxes for debt forgiveness on their troubled home loans. The bill also extends a provision allowing homeowners to deduct mortgage insurance payments from their taxable income and provides other forms of tax relief.

    Special Instructions for Taxpayers

    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 13 and 14 of the Form 760PY Instructions. The corresponding fixed-date conformity instructions for nonresidents are located on Pages 11 and 14 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.


    Taxpayers Who Have Already Filed


    Individuals

    Individuals who have already filed a 2007 individual income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2007 Virginia individual income tax return. Amended individual income tax returns are filed using the 2007 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 2007 corporation income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2007 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 2007 individual income tax return with a fixed-date conformity adjustment that is not now required should file an amended 2007 Virginia fiduciary income tax return. Amended fiduciary income tax returns are filed using the 2007 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

    Last Updated 08/25/2014 16:46