Tax Type
Corporation Income Tax
Description
ACRS modifications
Topic
ACRS Modifications
Date Issued
06-13-1988
June 13, 1988
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-323 ACRS Modifications
Dear******************
This is in reply to your letter of January 5, 1988, and a letter from**********dated February 17, 1988, in which you applied for a correction of an assessment of corporation income tax against your former subsidiary and protested the application of a refund against this assessment.
Facts
The assets of the taxpayer were sold on August 15, 1986. In filing its return for the period, the taxpayer took a lump sum subtraction for the remaining unamortized ACRS additions. The auditor reduced this amount to the statutory 20% subtraction and the taxpayer was assessed on the balance.
An amended return has been filed for the same taxable year to report a reduction in federal taxable income. The amended return reflects the proper ACRS subtraction. The refund requested with the amended return has been applied against the outstanding assessment.
Discussion
In the application you claim that there is a difference between the state tax basis and the federal tax basis of assets sold because of the 30% ACRS addback required by Virginia law. There is no such thing as a "Virginia basis." We start with federal taxable income and make only those modifications that are provided by law. There is no provision in Virginia law f or a lump sum subtraction.
The taxpayer's former parent believes that this is double taxation on the part of Virginia and that disallowing federal depreciation and taxing federal gains is not a fair and equitable method of taxation. This is not double taxation because the law provides that the additions shall be recovered over a five-year period, and this recovery does not depend upon continued ownership of the depreciable asset. The department has never permitted nor required any adjustments to basis because of the ACRS modifications.
However, the assessment corrected an ACRS subtraction on the original return. Since the amended return claims the proper subtraction, the assessment will be abated and the amount applied to the assessment will be refunded.
The outstanding balance of ACRS subtractions may be claimed in succeeding taxable years by the taxpayer or if the taxpayer has been liquidated by the taxpayer' 8 parent. See enclosed Virginia Regulation §630-3-323 D.2.c.
The General Assembly has restored full conformity to federal ACRS deductions effective for taxable years beginning on and after January 1, 1988, as part of the Virginia Tax Reform Act of 1987 (1987 Acts c. 9, HB 1119, copies of the act and the department's Legislative Impact Statement are enclosed). Therefore, Virginia taxpayers will no longer be required to make an addition equal to 30% of their federal ACRS deductions.
The act added Va. Code §58.1-323.1 which permits taxpayers to subtract the outstanding balance of excess cost recovery (i.e., additions less allowable subtractions from 1982 through 1987) over two taxable years (for individuals) or five taxable years (for corporations). In 1988 the General Assembly amended this section to deal with final returns filed before 1988 (1988 Acts c. 773, SB 441, copies of the act and the department's Legislative Impact Statement are enclosed).
Determination
Accordingly, the assessment will be abated and the amount applied to the assessment will be refunded.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner