Tax Type
Corporation Income Tax
Description
Foreign currency transactions
Topic
Allocation and Apportionment
Date Issued
01-07-1985
January 7, 1985
Re: Corporation Income Taxes
For the Years 1981 and 1982
Dear *****************
This will respond to your letter of August 13, 1984 and your protest of assessments resulting from the department's corporate income tax audit for the years 1981 and 1982.
Your protest is limited to the department's treatment of certain foreign exchange transactions and is deemed to have been submitted pursuant to the provisions of Virginia Code §58-1118.
Facts
During the year 1981, specifically between January 21, 1981 an April 22, 1981, Taxpayer engaged in several foreign currency transactions in anticipation of subsequent re-conversion into U.S. dollars at favorable exchange rates.
As required for federal income tax purposes, Taxpayer reported the foreign currency transactions on Schedule D of Form 11'0, reflecting acquisition cost of ***** proceeds from re-conversion to U.S. dollars of ***** and a net loss of *****.
In audit, the department included ***** in the numerator and the denominator of the sales apportionment factor, increasing sales attributable to Virginia from ***** to *******.
In protest, you request the removal of ***** from both the numerator and the denominator of the sales factor.
Determination
§ 58-151.034(b) of the Code of Virginia defines "Sales" for purposes of the sales factor as all gross receipts of the corporation not allocated under §58-151.037.
However, in my opinion, the conversion of foreign currency into U.S. dollars is not a transaction producing gross receipts, but rather a mere change in the form of the money involved. Gross receipts in such transactions result only from a difference between the amount of U.S. dollars originally converted to foreign currency and the amount of U.S. dollars subsequently received in re-conversion.
The assessment for 1981 will accordingly be revised to reflect the deletion of ***** from both the numerator and the denominator of the sales factor. Revised assessments will be due and payable upon receipt.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner