Tax Type
Corporation Income Tax
Description
Returns of affiliated corporations; Change in method of filing
Topic
Returns and Payments
Date Issued
12-13-1996
December 13, 1996
Re: §58.1-1821 Application: Corporation Income Tax
Dear********************
This will respond to your letter which you request permission for************* (the "Taxpayer") and its affiliates to file a combined Virginia corporation income tax return for the taxable year ended September 30, 1991.
FACTS
The Taxpayer and an affiliated corporation filed separate Virginia corporation income tax returns for the taxable year ended September 30, 1990, the first year two or more affiliated corporations filed in Virginia. Beginning with the taxable year ended September 30, 1991, the taxpayer and four affiliated corporations filed a combined Virginia return. The Taxpayer did not request permission from the department to change its filing status as required by Code of Virginia §58.1-442 (A). On audit, the combined return was dissolved into separate returns for all affiliates and additional tax was assessed. You now request that the department accept the returns as filed.
DETERMINATION
Code of Virginia §58.1-442 allows corporations to elect to file returns as separate, combined, or consolidated entities regardless of how the corporations filed their federal income tax return. Virginia Regulation (VR) 630-3-442 (1) (B) 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 combined return, or a consolidated return. All returns for subsequent years must be filed on the same basis unless permission to change is granted by the department.
The Taxpayer was a member of an affiliated group of corporations within the meaning of VR 630-3-302 prior to the taxable year ending September 30, 1991. These corporations filed their Virginia returns on a separate basis, thereby electing the separate filing status for all subsequent years. In accordance with VR 630-3-442 (1) (B), the members of the group must follow the filing method previously elected by the group.
The Taxpayer and its affiliates filed a combined return for the taxable year ended September 30, 1991, without first requesting permission to change its filing status. You now ask the department to accept the combined filing. The acceptance by the department of the Taxpayer's combined filing would constitute granting the Taxpayer retroactive permission to change its filing status.
You have cited Public Document (P.D.) 93-69, (3-18-93) as authority in support of your request. A review of the department's prior letters granting permission to change from separate to combined returns indicates that the vast majority respond to requests filed on or before the extended due date for the filing of the combined return. Nevertheless, there may have been a few letters allowing a combined Virginia corporation income tax return concurrent with the filing of the first combined return. These requests to change the filing status had timely filed requests attached to the return. See P.D. 93-64, (3-17-93), (copy attached). Therefore, permission was granted to change filing statuses because permission was requested on a timely basis.
You believe that the facts in P.D. 93-69 are essentially identical to the facts in the instant case, in that the department treated the filing of the return first filed using the combined status as a request for permission and granted the affiliated group permission to change from separate to combined filing status for the taxable year ended prior to the formal request.
The facts in P.D. 93-69 are not consistent with those in your protest. In P.D. 93-69, a request to change from separate filing to a combined filing status was enclosed with a timely filed return and the department failed to act on the request. Thus, upon notification from the taxpayer of the request, the department allowed the request as timely filed and granted the taxpayer permission to continue to file on a combined basis concurrent with the filing of the return to which the request was attached. The mere filing of a combined return does not constitute a formal request to change a filing status.
The department will generally grant permission to change to a combined filing if permission to change is requested on a timely basis. However, permission to change will generally be effective only for returns filed on or after the date the permission to change was filed. Permission to file a combined return on a retroactive basis is granted only in unusual circumstances. You have shown no such circumstances
The combined returns for the taxable years ending September 30, 1992, 1993, and 1994, were improperly filed, because permission to change from separate to combined filing status was not obtained by the affiliated group. Therefore, the department finds that the auditor's adjustment to remove the affiliated group from the combined filing status and tax the affiliates on a separate company basis to conform with their original election is correct. However, the department will generally grant permission to change to a combined filing on a prospective basis. Since your request to file combined is timely for the taxable year ending September 30, 1995, permission is hereby granted to file a combined return for the current year and thereafter.
Accordingly, your application for relief must be denied. Attached are schedules accruing interest to date which should be paid within 60 days to avoid accrual of additional interest. Please forward your payment to ******* Office of Tax Policy, Virginia Department of Taxation, Post Office Box 1880, Richmond, Virginia 23218-1880.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10800P
Rulings of the Tax Commissioner