Tax Type
Corporation Income Tax
Description
Request to file retroactive consolidated returns
Topic
Returns/Payments/Records
Date Issued
09-13-1994
September 13, 1994
Re: Request for Ruling: Corporate Income Tax
Dear******
This will reply to your letter of August 16, 1994, in which******(the "Taxpayer") and affiliates seek permission to change from filing separate Virginia income tax returns to filing a consolidated Virginia income tax return, retroactively beginning with the year ended December 31, 1991.
FACTS
The Taxpayer and affiliated companies filed separate Virginia tax returns prior to 1991. Beginning with the 1991 taxable year, the Taxpayer and affiliates began filing a consolidated Virginia return without first requesting and receiving permission from the department. The Taxpayer now requests permission to change to the consolidated filing method, and requests that its 1991 and 1992 returns be accepted as filed.
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. VR 630-3-442 A provides that in the first year two or more members of an affiliated group of corporations are required to file Virginia returns, the group may elect to file separate returns, a consolidated return, or a combined return. All returns for subsequent years must be filed on the same basis unless permission to change is granted by the department. Permission to change to or from the consolidated filing method is generally not granted by the department, because this change can affect the allocation and apportionment factors and possibly distort the reporting of the portion of business done in Virginia.
Prior to the 1991 taxable year, the Taxpayer and affiliates were members of an affiliated group within the meaning of VR 630-3-302. These corporations filed their Virginia returns on a separate basis, thereby electing the separate filing status for all subsequent returns.
Based on the facts as presented, no extraordinary circumstances exist to warrant granting permission to change to filing on a consolidated basis. Accordingly, permission to file a consolidated return cannot be granted.
Va. Code § 58.1-442 permits affiliated corporations to file a combined return. Permission to change between the separate and combined return filing methods generally will be granted, because allocation and apportionment formulas are not affected by changes between these two statuses. However, when a combined return is filed without first receiving permission to change from filing separate returns, a significant administrative burden is created for the department. Each separate account (for each affiliate) must be adjusted to transfer payments and credits to the combined account. Furthermore, the department must address nonfiler notices and other correspondence for each account. Accordingly, in is not the department's policy to grant permission to file combined returns on a retroactive basis.
A review of the returns and our files indicates that significant administrative problems were created by the Taxpayer filing consolidated returns on its own initiative. The problems would be the same for retroactive combined returns. In 1990, several members applied overpayment credits to 1991 that were not credited to a single account. Seven separate affiliate accounts are involved for each year, and two of the corporations reported federal net operating losses. Furthermore, a review of our system indicates that each affiliate of the Taxpayer has received nonfiler notices, some for 3 years. Each nonfiler notice requires the attention of a member of the department, in addition to the consideration of nonfiler penalty abatements.
In view of the significant administrative burden caused by allowing a change in filing status without receiving prior approval, the department does not grant permission to file combined returns on a retroactive basis in the absence of extraordinary circumstances. Based on the facts as presented, extraordinary circumstances do not exist.
After considering all of the factors, retroactive permission to file combined returns for 1991 and 1992 cannot be granted. Because the request to change was filed before the extended due date for the 1993 return, permission is granted to file a combined return for 1993 and thereafter, if the combined return includes all affiliated corporations subject to the Virginia income tax and if they use the same taxable year.
Because the 1991 and 1992 returns were not filed as separate returns, they must be resubmitted. If such separate returns, including full payment of any taxes owed, are received by the department within 45 days of the date of this letter, no late filing or underpayment of estimated tax penalty will be imposed, and interest will be calculated from the original due date of the returns (not including extensions) through August 16, 1994, the date of your letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8384M
Rulings of the Tax Commissioner