Tax Type
Corporation Income Tax
Description
Homeowners' association
Topic
Returns/Payments/Records
Date Issued
12-20-1989
December 20, 1989
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-441 Reports by Corporations
Dear*************
This is in response to your letter of June 26, 1989 in which you applied for correction of an assessment of corporation income tax.
Facts
The Taxpayer is a homeowner's association incorporated under the laws of the state of Virginia. The Taxpayer makes the annual election under Internal Revenue Code § 528 to be treated as an organization exempt from income taxes by filing Form 1120-H, U. S. Income Tax Return for Homeowner's Associations.
The Taxpayer failed to file a 1987 corporation income tax return with the Commonwealth of Virginia and was sent a letter requesting that the delinquent return be filed. When there was no response to the letter, the department estimated the tax liability based on returns for prior periods and assessed tax, penalty and interest pursuant to Va. Code §58.1-111. The Taxpayer protests the assessment, contending that since the corporation is an organization exempt from income taxes for federal purposes, it is exempt from state taxes and is not required to file a corporation income tax return with the state.
Discussion
The fact that a corporation is exempt from Virginia income tax does not eliminate the responsibility of filing a corporation income tax return. §58.1-441 of the Code of Virginia provides that every corporation organized under the laws of Virginia shall file a return with the Department of Taxation. No exceptions to this requirement are specified. Virginia Regulation §630-3-401A adds that even though a corporation is exempt from Virginia income tax, it may be required to file a return under Va. Code §58.1-441.
Virginia Regulation VR 630-3-401F further states that corporations claiming to be exempt from the Virginia income tax must substantiate their exempt status under the federal income tax laws; every corporation is presumed to be taxable unless appropriate substantiation is furnished.
Although a homeowner's association is considered an "organization exempt from income taxes" under I.R.C. §528, it is not necessarily exempt from federal and Virginia income tax. The Virginia exemption does not apply to exempt organizations that have unrelated business taxable income or other taxable income. Therefore, a homeowner's association must file a Virginia return to show that its federal "homeowner's association taxable income," as defined in I.R.C. §528, is zero for the taxable year.
As these sections make clear, a filing with the Virginia Department of Taxation is required even if the corporation is exempt from Virginia income tax, if for no other reason than to substantiate the corporation's claim of tax exempt status.
Determination
Accordingly, the assessment is correct as made. However, should you provide information to substantiate your claim of federal tax-exempt status for federal purposes, by filing a Virginia corporation income tax return with the appropriate schedules or other information supplied to the Internal Revenue Service, then the assessment of tax will be abated. At that time consideration will be given whether reasonable cause exists to waive the penalty.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner