July 15, 2019
Re: Request for Ruling: Pass-Through Entity
Dear *****:
This will reply to your letter in which ***** (the “Taxpayer”) requests an extension of time to file amended returns for the taxable years ended December 31, 2014 and 2015.
FACTS
The Taxpayer, a Virginia S corporation, timely filed its Virginia pass-through entity returns of income for the 2014 and 2015 taxable years. These two years are currently under audit by ***** (State A). The Taxpayer indicates that the audit may result in an adjustment in income. As such, its shareholders, ***** and *****, (the “Shareholders”), may be eligible to claim an out-of-state credit for 2014 and 2015. You request that Virginia allow an extension of the statute of limitations to file amended returns.
RULING
Virginia’s conformity to federal income tax law is set forth in Virginia Code § 58.1-301, which provides that the terms used in the Virginia income tax statutes will have the same meaning as used in the Internal Revenue Code (IRC). Further conformity does not extend to terms, concepts, or principles specifically provided for in Title 58.1 of the Code of Virginia. For Virginia, federal taxable income (FTI) and federal adjusted gross income (FAGI), the starting points for determining income taxable in Virginia for corporations and individuals, respectively, are identical to that as defined by the IRC.
In following federal tax policy with respect to S corporations, Virginia Code § 58.1-401 provides that such corporations are not subject to income tax in Virginia. Thus, Virginia has elected to treat S corporations in substantially the same manner as has the Internal Revenue Service (IRS), i.e. the corporate entity itself is not subject to taxation, but the shareholders will be taxed as individuals on their pro rata share of S corporation income to the extent includable in FAGI. See Title 23 of the Virginia Administrative Code (VAC) 10-120-90 E, Public Document (P.D.) 88-165 (6/29/1988) and P.D. 07-99 (6/27/2007). As such, the Taxpayer’s items of income, gain, loss, deduction and credit flow through to its shareholders. Under Virginia Code § 58.1-392, however, pass-through entities (including S corporations, partnerships and limited liability companies) doing business in Virginia or having income from Virginia sources are required to file an informational return with the Department.
Generally, Virginia Code § 58.1-1823 allows a taxpayer to file an amended return within three years from the last day prescribed by law for the timely filing of the return. However, there a number of exceptions to the general rule when specific circumstances are present. Under Virginia Code § 58.1-1823 A (v), a taxpayer has one year from the final determination of a change made by any other state to file an amended return to request a refund, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such change. Again, because S corporations are not generally subject to Virginia income tax, it would not be able to file an amended return requesting a refund.
If the audit results in a change that impacts Virginia taxable income (VTI) of the Shareholders, the Taxpayer would have one year from the final State A determination to file amended Virginia returns. If the State A audit does not affect the VTI of the Shareholders, there would be no requirement to file amended returns. However, if the Shareholders are required to file amended Virginia individual returns, it may be beneficial for the Taxpayer to file amended returns even if not required.
The Code of Virginia sections, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/2016.B