Document Number
08-89
Tax Type
Fixed-Date Conformity
Description
Virginia's conformity to certain federal provisions that deal with Gulf Opportunity ("GO") Zone property.
Topic
Federal Conformity
Date Issued
06-17-2008

June 17, 2008





Re: Ruling Request: Fixed Date Conformity

Dear *****:

This is in response to your letter in which you requested clarification regarding Virginia's conformity to the federal income tax code on behalf of your client (the "Taxpayer"). In particular, you asked about Virginia's conformity to certain federal provisions that deal with Gulf Opportunity ("GO") Zone property.

FACTS


The Taxpayer is a Virginia resident who acquired qualified GO Zone residential rental property in December of 2007. As such, he received several federal tax benefits, including an additional fifty percent depreciation deduction on his federal income tax return for 2007. He was also able to take advantage of special five-year net operating loss ("NOL") GO Zone carryback rules.

You now ask if the additional fifty percent depreciation deduction is subject to Virginia fixed date conformity rules and whether it requires an adjustment on the Virginia income tax return. You also ask if the special five-year NOL carryback is allowed for Virginia income tax purposes.

Please note that this ruling assumes that the property acquired by the taxpayer was, in fact, qualified GO Zone property. Such a determination, however, rests with the Internal Revenue Service.

RULING


Gulf Opportunity Zone Act of 2005

The Gulf Opportunity Zone Act of 2005 (Public Law 109-135), which was signed by President Bush on December 21, 2005, established tax incentives and bond provisions in order to provide assistance for areas affected by hurricanes Katrina, Rita, and Wilma. In part, the Act created a new section in the Internal Revenue Code (the "IRC") titled section 1400N. Among other tax benefits, IRC § 1400N(d) currently allows taxpayers who acquired qualified GO Zone property on or after August 28, 2005, to claim a fifty percent bonus depreciation deduction. In addition, IRC § 1400N(k) provides that if a portion of any net operating loss of the taxpayer for any taxable year is a qualified GO Zone loss, that portion may be carried back to each of the five taxable years preceding the taxable year of the loss.

Virginia Conformity to the Internal Revenue Code

Virginia Code § 58.1-301 provides that, "Any reference in this chapter to the laws of the United States relating to federal income taxes shall mean the provisions of the Internal Revenue Code of 1954, and amendments thereto, and other provisions of the laws of the United States relating to federal income taxes . . . ." Currently, Virginia conforms to the Internal Revenue Code as it existed on December 31, 2007. There are only two exceptions to this conformity. This first is for the special depreciation allowance for certain property provided for under IRC § 168(k). The second is for the carryback of certain net operating losses for five years under IRC § 172(b)(1)(H).

Because Va. Code § 58.1-301 does not specifically deconform from the provisions in I RC § 1400N, Virginia will conform to those provisions. Therefore, the additional fifty percent depreciation deduction will flow through to the Virginia income tax return. Because of this, the taxpayer will not be required to make a fixed-date conformity adjustment on his Virginia income tax return.

In addition, the special five-year NOL carryback will be allowed for Virginia income tax purposes. Although the Commonwealth has deconformed from the carryback of certain NOL's for five years under Va. Code § 58.1-301, TAX has ruled that this does not prevent the carryback of all NOL's for five years. For example, in Public Document 04-198 (10/28/04), TAX ruled that, because the specific provision creating the five-year carryback in that case was unaffected by Virginia's conformity law, the farming loss of the taxpayer that was carried back for five years would be allowed to flow through to the Virginia income tax return. The same is true in this case.

I trust that this reply answers your ruling request. The Code of Virginia sections cited and other reference documents are available on-line in the Tax Policy Library section of the TAX's web site located at www.tax.virginia.gov. If you should have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Policy Development, at *****.
                • Sincerely,


                • Janie E. Bowen
                  Tax Commissioner

Rulings of the Tax Commissioner

Last Updated 09/16/2014 15:39