Tax Type
Corporation Income Tax
Description
Returns of affiliated corporations; Request to change filing status
Topic
Returns and Payments
Date Issued
09-30-1997
September 30, 1997
Re: Request for Ruling: Corporate Income Tax
Dear**********
This will respond to your letter in which you request permission for ******** (the "Taxpayer") and affiliates to file a consolidated Virginia corporation income tax return for the taxable year ending December 31, 1996, and thereafter.
FACTS
The Taxpayer and certain subsidiaries were spun off from their parent corporation in a transaction as described in Internal Revenue Code § 355. This transaction triggered no taxable event since the Taxpayer's affiliated group was separated from their parent and the stockholders of the parent corporation were distributed shares of stock in the Taxpayer.
Prior to this transaction, several of the Taxpayer's subsidiaries filed as part of a Virginia combined return. The Taxpayer was not included in this return since it did not have the requisite nexus to be included therein. The Taxpayer believes this transaction creates a new affiliated group which would give the Taxpayer and affiliates a "first year" election whereby the group may elect to file a consolidated Virginia return.
RULING
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. Once an affiliated group has made an election, the group may not change its filing status unless permission is granted by the department. Other members of the affiliated group of corporations which become subject to Virginia income tax in subsequent years must conform to the initial election of the group.
Prior to the spin off of the Taxpayer, the group was affiliated within the meaning of Code of Virginia § 58.1-302. The affiliated corporations filed their Virginia corporation income tax returns as part of a combined return, thereby electing combined filing status for all subsequent years. Therefore, the taxable year ending December 31, 1996, is not an initial election year for the Taxpayer, and the Taxpayer's affiliated group must conform to the prior election and file a combined return.
It is well established that permission to change to or from consolidated returns will generally not be granted absent extraordinary circumstances. Based on the facts presented, I find no extraordinary circumstances to warrant the granting of permission for the affiliated group to change to filing on a consolidated basis. Accordingly, permission to change filing status must be denied.
If you wish to meet to present any additional information relative to your request to file a consolidated return, please do not hesitate to contact us. Absent additional information, however, we have no alternative but to deny your request.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12313P
Rulings of the Tax Commissioner