Tax Type
Corporation Income Tax
Description
Loss carryback for subsidiary; Consolidated return
Topic
Taxable Income
Date Issued
06-20-1988
June 20, 1988
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-402 Virginia Taxable Income
Dear****************
This is in response to your letter of January 13, 1988, in which you requested that we reconsider the determination in our letter of October 14, 1987 (P.D. No. 87-231).
Facts
The taxpayer is a member of an affiliated group of corporations which files a consolidated federal return and a combined Virginia return. The letter which you ask us to reconsider held that a loss incurred by one of the subsidiaries in F.Y.E. 9/30/86 could not be carried back to F.Y.E. 9/30/85 because the subsidiary also incurred a loss in the carryback year. You have submitted evidence that the group was allowed to carry the loss back in the consolidated federal return.
Discussion
The fact that the loss carryback was allowed for federal purposes does not affect our determination because the federal return is prepared on a different basis than the Virginia return.
In a consolidated return, for federal and Virginia purposes, all income and expense items are consolidated into a single income or loss amount. A combined Virginia return has no federal counterpart. It is essentially a separate return for each corporation in which only the Virginia taxable income (after apportionment) is combined. Thus, when the federal and Virginia returns are prepared differently, the term "federal taxable income" for Virginia purposes may be different than the "federal taxable income" actually reported to the Internal Revenue Service.
When federal taxable income is determined as if a separate federal return had been filed, as is required in a Virginia combined return, a net operating loss deduction from another taxable year cannot be used to create or increase a net operating loss. See ruling letter dated June 24, 1983 (copy enclosed). Since the subsidiary's federal taxable income was a loss in F.Y.E. 9/30/85, that loss cannot be increased by a net operating loss deduction when computing federal taxable income for Virginia purposes.
Determination
Accordingly, the refund sought by the taxpayer was properly denied in our determination letter dated October 14, 1987.
Sincerely,
W. H. Forst
Tax Commissioner
Related Documents
Rulings of the Tax Commissioner