Tax Type
Individual Income Tax
Description
Subtractions from FAGI; Foreign source income from mutual funds
Topic
Taxable Income
Date Issued
06-18-1999
June 18, 1999
Re: Individual Income Tax
Dear***
This will reply to your letter in which you request a ruling regarding whether foreign source income from a mutual fund qualifies for the foreign source income subtraction.
FACTS
Your client receives Income from a United States mutual fund. The mutual fund invests in both foreign and domestic securities. You have requested a ruling regarding whether the income attributable to foreign securities qualifies for the foreign source income subtraction even though mutual fund income does not qualify for the foreign tax credit under Internal Revenue Code (IRC) § 853.
RULING
Code of Virginia § 58.1-322(C)(7), copy enclosed, provides a subtraction from federal adjusted gross income for ``[A]ny amount included therein which is foreign source income as defined in § 58.1-302.' Code of Virginia § 58.1-302, copy enclosed, defines ``foreign source income' as:
In the present case, the fact that the income does not qualify for the foreign income credit under IRC § 853 has no bearing on whether it qualifies for a subtraction for Virginia purposes. Code of Virginia § 58.1-302 specifies that IRC §§ 861-863 apply. We can find no provision under the Treasury Regulations to IRC §§ 861, et seq., which suggests that foreign source income from a mutual fund would not qualify.
The department has previously ruled on a similar issue. In Public Document (P.D.) 89-180, 5/31/89, copy enclosed, the department ruled that if a mutual fund invests in federal or state obligations which are both taxable and exempt, the entire income is taxable unless the portion of exempt income can be substantiated. The present case is also a situation where a mutual fund is investing in both taxable and exempt securities. Therefore, if the foreign source income that is received from the mutual fund can be substantiated with reasonable certainty, that income will qualify for the subtraction pursuant to Code of Virginia § 58.1-322(C)(7).
This ruling has been made subject to the facts presented to the department as summarized above. Any change in these facts or the introduction of facts by another party may lead to a different result. If you have any additional questions regarding this ruling, please feel free to call ***** in the Office of Tax Policy at *****.
Re: Individual Income Tax
Dear***
This will reply to your letter in which you request a ruling regarding whether foreign source income from a mutual fund qualifies for the foreign source income subtraction.
FACTS
Your client receives Income from a United States mutual fund. The mutual fund invests in both foreign and domestic securities. You have requested a ruling regarding whether the income attributable to foreign securities qualifies for the foreign source income subtraction even though mutual fund income does not qualify for the foreign tax credit under Internal Revenue Code (IRC) § 853.
RULING
Code of Virginia § 58.1-322(C)(7), copy enclosed, provides a subtraction from federal adjusted gross income for ``[A]ny amount included therein which is foreign source income as defined in § 58.1-302.' Code of Virginia § 58.1-302, copy enclosed, defines ``foreign source income' as:
-
- 1. Interest, other than interest derived from sources within the United States;
2. Dividends, other than dividends derived from sources within the United States;
3. Rents, royalties, license, and technical fees from property located or services performed without the United States or from any interest in such property, including rents, royalties, or fees for the use of or the privilege of using without the United States any patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other like properties;
4. Gains, profits, or other income from the sale of intangible or real property located without the United States; and
5. The amount of an individual's share of net income attributable to a foreign source qualified business unit of an electing small business corporation (S corporation). For purposes of this subsection, qualified business unit shall be defined by § 989 of the Internal Revenue Code, and the source of such income shall be determined in accordance with §§ 861, 862 and 987 of the Internal Revenue Code.
- 1. Interest, other than interest derived from sources within the United States;
In the present case, the fact that the income does not qualify for the foreign income credit under IRC § 853 has no bearing on whether it qualifies for a subtraction for Virginia purposes. Code of Virginia § 58.1-302 specifies that IRC §§ 861-863 apply. We can find no provision under the Treasury Regulations to IRC §§ 861, et seq., which suggests that foreign source income from a mutual fund would not qualify.
The department has previously ruled on a similar issue. In Public Document (P.D.) 89-180, 5/31/89, copy enclosed, the department ruled that if a mutual fund invests in federal or state obligations which are both taxable and exempt, the entire income is taxable unless the portion of exempt income can be substantiated. The present case is also a situation where a mutual fund is investing in both taxable and exempt securities. Therefore, if the foreign source income that is received from the mutual fund can be substantiated with reasonable certainty, that income will qualify for the subtraction pursuant to Code of Virginia § 58.1-322(C)(7).
This ruling has been made subject to the facts presented to the department as summarized above. Any change in these facts or the introduction of facts by another party may lead to a different result. 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