Tax Type
Corporation Income Tax
Description
Returns of Affiliated Corporation; Consolidated Filing
Topic
Returns and Payments
Date Issued
10-19-1992
October 19, 1992
Re: Ruling Request -- Corporation Income Taxes
Dear **************
This will reply to your letter dated August 19, 1992, requesting clarification of the Department's position regarding the consolidated filing status of ********** (the "taxpayer").
FACTS
The taxpayer and one subsidiary filed separate Virginia income tax returns in 1984, their initial Virginia filing year. In 1985, the taxpayer acquired two additional subsidiaries, and filed a combined return including all Virginia companies. In 1986, the taxpayer acquired additional Virginia companies, filed a consolidated return, and requested that this return be accepted as filed for that and all future taxable years.
The taxpayer did not receive a reply to its request from the Department, and continued to file in this manner. This issue was discovered during the course of a recent audit, prompting you to formally request a switch to filing on the consolidated basis for all years in which the taxpayer has filed income tax returns.
DETERMINATION
Under Va. Code § 58.1-442, an affiliated group may not change an initial election to file returns on a separate, combined, or consolidated basis unless permission is granted by the Department of Taxation. It is well established that permission to change to or from a consolidated filing status will generally not be granted, as the change affects the allocation and apportionment factors, and distorts business done, and income arising from, Virginia.
Virginia Regulation (VR) 630-3-442.A provides that the election of return filing status is made the first year two or more affiliated corporations are required to file Virginia income tax returns. In this case, the filing of separate returns in the taxpayer's and subsidiary's first year in Virginia appears to be a binding election.
Based upon the facts presented, I find that no extraordinary circumstances existed at the time the 1986 return was filed that would have justified granting permission to change to consolidated filing. See Public Document (P.D.) 92-83 (6/1/92, copy enclosed). Furthermore, the fact that the taxpayer filed consolidated returns in 1986 and thereafter without having obtained permission in advance is not sufficient justification for accepting the returns as filed, effectively granting retroactive permission to change to consolidated. See P.D. 90-159 (9/6/90, copy enclosed).
Further, to change between filing statuses, Virginia law requires more than merely requesting permission -- it must actually be granted. However, I am willing to grant permission to change from the separate to the combined filing status in 1985, and to allow the tax returns for the taxpayers to be filed for all subsequent taxable years utilizing this method.
Therefore, amended returns must be filed for all years for which an assessment or refund is within the statute of limitations. Since the returns are currently under audit, the auditor is required by existing policy to determine taxable income on a combined basis.
Although you requested a conference, this letter has been sent without one, since the facts and circumstances in this case appear to be clear and straight forward enough to preclude the need for a conference. If, after reading this letter, you still desire one, please call the Department to arrange for a mutually convenient time to meet.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/6369G
Rulings of the Tax Commissioner