Tax Type
Individual Income Tax
Description
Taxable income of partners; Unified return net operating loss.
Topic
Partnerships
Date Issued
03-24-1998
March 24, 1998
Dear**********
This will reply to your letter in which you request a ruling as to the proper application of a net operating loss (NOL) with respect to your client (the ``Taxpayer').
FACTS
The Taxpayer, an S corporation, files a unified return on behalf of its nonresident individual shareholders. The Taxpayer incurred a federal NOL for the taxable year ended December 31, 1996. For a number of the shareholders, their portion of the Taxpayer's NOL resulted in a NOL on their personal federal income tax return for 1996, which they carried back. The remaining shareholders were able to offset their entire portion of the NOL with other income on their 1996 federal returns. You request a ruling concerning if and how the Virginia unified return NOL would be carried back or forward on the Virginia unified return.
Ruling
The department has previously addressed this issue in Public Document (P.D.) 93-244, 12/28/93, copy enclosed. In this ruling, the taxpayer was requesting permission to carryback an apportioned NOL reported on a unified income tax return to offset the income reported on previous years unified returns. This request was denied because a NOL on a Virginia unified return that is carried back against income reported on a unified return from a prior year creates an advantage for the entity and its owners that could not be achieved if individual Virginia returns had been filed. In effect, a Virginia net operating loss would be created that is clearly not authorized by the Code of Virginia. The privilege of filing a Virginia unified income tax return is not intended to create an economic advantage for the entity.
A unified return is an administrative convenience that allows nonresident partners, S corporation shareholders, limited liability company members, or common trust fund beneficiaries to pay their respective Virginia tax on one return. The need for filing a separate Virginia return for each owner or beneficiary is also eliminated. The convenience of filing a unified return in lieu of separate returns for each owner or beneficiary will usually result in the loss of certain benefits that could otherwise be obtained through separate returns. This is a choice that nonresident owners and beneficiaries make at the time of application for the filing of a unified return. Thus, because the nonresident owners and beneficiaries have chosen to allow the entity to file a Virginia return on their behalf, a NOL reported on a Virginia unified income tax return may not be used to offset the prior or future income on their separate individual income tax returns. To allow such, would be to allow the nonresident owners and beneficiaries the double benefit of reporting the NOL on a unified basis and allowing them to offset prior and future personal income from Virginia sources.
Thus, in answer to your request, a NOL occurring in a year when the nonresident owners and beneficiaries of a pass-through entity are permitted to file a unified income tax return, the NOL may not be carried back or forward to offset the income reported on the Virginia unified returns or the Virginia nonresident returns of the individual owners and beneficiaries.
If you have any additional questions regarding this ruling, please feel free to call ***** in the Office of Tax Policy at *****.
Dear**********
This will reply to your letter in which you request a ruling as to the proper application of a net operating loss (NOL) with respect to your client (the ``Taxpayer').
FACTS
The Taxpayer, an S corporation, files a unified return on behalf of its nonresident individual shareholders. The Taxpayer incurred a federal NOL for the taxable year ended December 31, 1996. For a number of the shareholders, their portion of the Taxpayer's NOL resulted in a NOL on their personal federal income tax return for 1996, which they carried back. The remaining shareholders were able to offset their entire portion of the NOL with other income on their 1996 federal returns. You request a ruling concerning if and how the Virginia unified return NOL would be carried back or forward on the Virginia unified return.
Ruling
The department has previously addressed this issue in Public Document (P.D.) 93-244, 12/28/93, copy enclosed. In this ruling, the taxpayer was requesting permission to carryback an apportioned NOL reported on a unified income tax return to offset the income reported on previous years unified returns. This request was denied because a NOL on a Virginia unified return that is carried back against income reported on a unified return from a prior year creates an advantage for the entity and its owners that could not be achieved if individual Virginia returns had been filed. In effect, a Virginia net operating loss would be created that is clearly not authorized by the Code of Virginia. The privilege of filing a Virginia unified income tax return is not intended to create an economic advantage for the entity.
A unified return is an administrative convenience that allows nonresident partners, S corporation shareholders, limited liability company members, or common trust fund beneficiaries to pay their respective Virginia tax on one return. The need for filing a separate Virginia return for each owner or beneficiary is also eliminated. The convenience of filing a unified return in lieu of separate returns for each owner or beneficiary will usually result in the loss of certain benefits that could otherwise be obtained through separate returns. This is a choice that nonresident owners and beneficiaries make at the time of application for the filing of a unified return. Thus, because the nonresident owners and beneficiaries have chosen to allow the entity to file a Virginia return on their behalf, a NOL reported on a Virginia unified income tax return may not be used to offset the prior or future income on their separate individual income tax returns. To allow such, would be to allow the nonresident owners and beneficiaries the double benefit of reporting the NOL on a unified basis and allowing them to offset prior and future personal income from Virginia sources.
Thus, in answer to your request, a NOL occurring in a year when the nonresident owners and beneficiaries of a pass-through entity are permitted to file a unified income tax return, the NOL may not be carried back or forward to offset the income reported on the Virginia unified returns or the Virginia nonresident returns of the individual owners and beneficiaries.
If you have any additional questions regarding this ruling, please feel free to call ***** in the Office of Tax Policy at *****.
Rulings of the Tax Commissioner