Tax Type
Corporation Income Tax
Description
Subtractions for "excess loss in subsidiary"
Topic
Subtractions and Exclusions
Date Issued
07-29-1993
July 29, 1993
Re: §58.1-1821 Application: Corporate Income Tax
Dear**********
This will reply to your letter of January 26, 1993 in which you make application for correction of the assessments for additional corporate income tax to ************* (the "Taxpayer") for the fiscal year ended December 31, 1990.
FACTS
On its 1990 Virginia income tax return the Taxpayer claimed a subtraction from Virginia taxable income for an "excess loss in subsidiary." Upon examination, this subtraction was disallowed because the Code of Virginia contains no provision which allows such a subtraction. You protest this determination, and aver that the subtraction should be allowed.
DETERMINATION
The "subtraction" claimed by the Taxpayer results from the recapture of an excess loss account upon the deemed disposition of a subsidiary in accordance with U.S. Treasury Regulation 1.1502-19. I have previously ruled in Public Document (P.D.) 91-59 (3/29/91) that because this income represents the recapture of losses that were never claimed against Virginia taxable income, it is not subject to taxation in Virginia. The facts in the instant case are essentially the same as those in P.D. 91-59 with respect to this matter; accordingly, I find that similar relief is appropriate. See P.D. 91-59, copy attached, for a detailed technical analysis of this issue.
It should be noted that this adjustment is necessary to reconcile federal taxable income as reported to federal taxable income for Virginia purposes. Such adjustments may be required where a taxpayer files a federal consolidated return and a separate Virginia return. If the Taxpayer had filed a separate federal return this income would not have been included in its federal taxable income. This is not a "subtraction" from Virginia taxable income as that term is used in Va. Code §58.1-402.
Accordingly, the assessment will be revised to allow the "subtraction" as filed. You will receive an updated statement reflecting the revised tax and interest in due course.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6727M
Rulings of the Tax Commissioner