Tax Type
Corporation Income Tax
Description
I.R.C. § 338(h)(10) election; Interest
Topic
Collection of Tax
Date Issued
06-09-1992
June 9, 1992
Re: Va. Code §58.1-1821 Application: Corporation Income Taxes
Dear**************
This will reply to your letter of July 10, 1990, in which you protest the imposition of interest on a late payment of tax on behalf of **************** (the "Taxpayer"). I apologize for the delay in responding.
FACTS
The taxpayer recently sold a company (the target), and has elected, with the purchaser, to apply the provisions of I.R.C. §338(h)(10) to the sale of the target's stock. As a result of this federal election, a series of fictitious steps is deemed to have occurred:
-
- The target is deemed to have sold its assets, recognizing gain or loss that must be included in the selling group's consolidated federal return;
The target is deemed to have distributed all its assets in a complete liquidation to which I.R.C. §332 applies;
Any gain or loss on the sale of target stock incurred by the selling group is ignored.
- The target is deemed to have sold its assets, recognizing gain or loss that must be included in the selling group's consolidated federal return;
DETERMINATION
Virginia treatment: Virginia conforms to federal taxable income as the starting point for calculating the income tax. Therefore, Virginia's treatment of the I.R.C. §338(h)(10) election will mirror federal treatment as closely as possible, while ensuring that any Virginia tax accurately reflects the business activity in Virginia. The Virginia policy regarding elections under I.R.C. §338(h)(10) is included in Public Document (PD) 91-317 (12/30/91) (copy enclosed).
Interest assessment: Virginia income tax returns are generally due the 15th day of the 4th month after the close of the taxable year (Virginia Regulation (VR) 630-3-441.B.1). Whenever a corporation has been granted an extension by the Internal Revenue Service, the due date of the accompanying Virginia income tax return is thirty days after the federal due date, as long as this is not beyond the 15th day of the 10th month following the end of the taxable year (VR 630-3-453). Any interest assessed by Virginia begins to accrue on the due date of the underlying Virginia return without regard to any extensions (VR 630-3-453.C.2).
In an I.R.C. §338(h)(10) election, the federal return of the target company reporting the results of the deemed sale of assets is required to be reported in the consolidated federal return of the selling group. In this instance, the selling group has a taxable year end of 10/89, and for federal purposes, the final federal return of the target reporting the deemed sale in 3/89 is properly included with the federal consolidated return for the taxable year ending 10/89. In effect, even though the target's taxable year ends with the deemed sale, the target's return due date remains the same as the due date for the selling group's consolidated return
The Virginia income tax return for the taxable year ended 10/89 is due February 15, 1990. The separate Virginia return reporting the results of the deemed sale was filed December 15, 1989; therefore, this return was not filed late.
Under VR 630-3-455, all Virginia tax payable as shown on the face of the Virginia tax return shall be paid on or before the due date of the return. Since the return at issue was due February 15, 1990, and the tax was paid with the return as filed on December 15, 1989, all Virginia tax was paid before the due date. Accordingly, I am abating all interest pertaining to the return at issue.
If you have further questions, please do not hesitate to write.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/4454G
Rulings of the Tax Commissioner