Tax Type
Corporation Income Tax
Description
Returns of Affiliated Corporations
Topic
Returns and Payments
Date Issued
03-17-1993
March 17, 1993
Re: Request for Ruling: Corporation Income Tax
Dear****************
This will reply to your letter of June 21, 1991, in which you request permission for ************("Taxpayer #1") to file a consolidated corporation income tax return which would include **********("Taxpayer #2") and ************** ("Taxpayer #3"), for the taxable year ended December 31, 1990, and for taxable years thereafter.
FACTS
Taxpayer #1 was formed in January of 1990. Taxpayer #2 was formed in 1989 and filed a consolidated return for that year with its four subsidiaries; Taxpayer #3, formed in 1984, filed a separate return, believing it was not eligible to be included in Taxpayer #2's consolidated return because of their brother-sister relationship. You now request permission for the affiliated group to file a consolidated return with Taxpayer #1.
RULING
Va. Code §58.1-442 allows corporations to elect to file returns on the basis of one of three filing statuses (separate, combined or consolidated) regardless of how the corporations filed their federal income tax return. 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.
The information provided indicates that 1989 was the first year two or more affiliated corporations were required to file Virginia corporation income tax returns, when the brother/sister relationship between Taxpayer #2 and Taxpayer #3 was established.
Taxpayer #2 filed a consolidated return with its four subsidiaries, thereby electing consolidated filing status for all subsequent returns. The consolidated return failed to include Taxpayer #3 because it was believed that brother/sister corporations were not eligible to be included in the same consolidated return because they are not "affiliated," as that term is defined in Va. Code §58.1-302. However, brother/sister corporations are "affiliated" and are eligible to be included in a consolidated Virginia income tax return. All other eligibility requirements for filing a consolidated return were satisfied; therefore, Taxpayer #3 should have been included in the return filed by Taxpayer #2 and its four subsidiaries.
Because an election to file on a consolidated basis was made by the affiliated group, Taxpayer #1, which became a member of the affiliated group and subject to Virginia income tax in 1990, must conform to that election. Therefore, the 1990 return for Taxpayer #1 and the affiliated group must be filed on a consolidated basis. The return should be filed in accordance with the requirements set forth in VR 630-3-442 (copy enclosed).
In addition, the consolidated Virginia return for 1989 must be amended to include Taxpayer #3, which was eligible and required to be included in the return. The separate return for Taxpayer #3 must be amended by eliminating the amounts reported on that return and including them in the consolidated return.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner