Tax Type
Individual Income Tax
Description
Nonresident partner
Topic
Partnerships
Returns/Payments/Records
Date Issued
03-24-1989
March 24, 1989
Re: Request for Ruling: Individual Income Tax Nonresident Individual Income Tax Return
Dear ********
This will reply to your letter dated September 7, 1988 in which you seek the answer to several questions regarding the proper filing of nonresident individual income tax returns in Virginia.
FACTS
A taxpayer owns a limited interest in a partnership which owns and operates rental property in Virginia. The taxpayer files an annual Federal Income Tax return in which his share of all required items of income and deductions are reported, including his share of the partnership's operations. The taxpayer is not a resident of Virginia. For federal purposes, the taxpayer reports a positive taxable income each year. The taxpayer's share of the partnership's operating profit/loss is as follows: ***********************************************************.
Based on these facts, you wish to know: (1) Is the taxpayer required to file a Virginia nonresident individual income tax return in years 1 through 4? (2) Does Virginia allow a net operating loss (NOL) carryforward for this nonresident? And if so, for how many years? (3) If an NOL carryforward is allowed and no returns are filed for years 1 through 4, will the nonresident be allowed an NOL deduction in year 5?
RULING
Question One:
As provided in § 630-2-321 of the Virginia Individual Income Tax Regulations, persons who are not subject to the income tax are not required to file a return. Therefore, if the taxpayer has no Virginia taxable income, he would not be required to file a return.
Question Two:
There is no statutory authority under the Code of Virginia for a separate Virginia net operating loss. However, because Virginia is a conformity state, Virginia taxable income is indirectly affected by a federal NOL deduction to the extent that it is reflected in FAGI. The amount of the federal NOL is the starting point in computing the amount of the Virginia modifications that will follow the federal NOL.
Therefore, if the taxpayer had an NOL carryforward for federal purposes, the NOL deduction would flow through to Virginia as a component of FAGI and the proportionate share of the Virginia modifications from the loss year would be reported as a separate item on the Virginia return. As under federal law, an NOL deduction may be carried forward for up to 15 years or until the loss is used up. Please see the enclosed copy of § 630-2-311.1 of the Virginia Individual Income Tax Regulations for details on the Virginia tax treatment of federal net operating losses.
However, this also means that a Virginia NOL deduction is not available if the Taxpayer did not carry forward a federal NOL to year 5. This is true even though the Taxpayer may have incurred losses from Virginia sources in years 1 through 4.
Question Three:
If tax returns were not filed in years 1 through 4, the NOL deduction would still flow through to Virginia in year 5 to the extent the carryforward is included in FAGI. To document the Virginia modifications reportable in the carryforward year, the Taxpayer must include the following statements with the Virginia return for year 5: 1) NOL modification worksheet or facsimile (see example in VR 630-2-311.1) and 2) a proforma Virginia return for each year a federal NOL was incurred.
I hope the forgoing information is helpful. If you have any further questions, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner