Tax Type
Individual Income Tax
Description
Determination of Exemption
Topic
Exemptions
Date Issued
11-30-1999
November 30, 1999
Re: Request for Ruling: Trust Taxation
Dear****:
This will reply to your letter in which you request a ruling concerning the conversion of common trust funds to regulated investment companies.
FACTS
You have requested a ruling concerning Virginia's tax treatment when a common trust fund is converted to a regulated investment fund under Internal Revenue Code ("I.R.C.') Sec. 584(h)(1). Specifically, you are asking whether (1) Virginia follows the federal tax exempt treatment of the transaction, (2) Virginia considers the transaction taxable, or (3) if Virginia has an alternative treatment.
RULING
I.R.C. Sec. 584(h)(1) provides nonrecognition treatment of gains and losses for participants in a common trust fund when the common trust fund transfers substantially all of its assets to one or more regulated investment companies in exchange solely for stock in the company or companies to which the assets are transferred. To receive the nonrecognition treatment, the stock must be distributed by the common trust fund to participants in the common trust fund in exchange solely for their interests in the common trust fund.
Virginia's conformity to federal law is set forth in Code of Virginia Sec. 58.1-301, which provides the terms used in the Virginia income tax statutes will have the same meaning as used in the I.R.C. Therefore, federal adjusted gross income ("FAGI') and federal taxable income ("FTI'), which are the starting points for determining Virginia taxable income for individuals and corporations, respectively, is identical to that as defined by the I.R.C.
The Virginia taxable income of a resident individual equals FAGI along with the modifications enumerated in Code of Virginia Sec. 58.1-322. If a gain or loss from the conversion of a common trust fund to a regulated investment company is not recognized for federal income tax purposes, such gain or loss would not be included in FAGI, and would not flow through to Virginia taxable income.
Currently, there is no provision under Code of Virginia Sec. 58.1-322 which would add a gain or loss from the above transaction to FAGI to determine Virginia taxable income. Therefore, any gain or loss resulting from the conversion of a common trust fund to a regulated investment fund as described above is not taxed by Virginia.
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 *****.
Sincerely,
Danny M. Payne
Tax Commissioner
Re: Request for Ruling: Trust Taxation
Dear****:
This will reply to your letter in which you request a ruling concerning the conversion of common trust funds to regulated investment companies.
FACTS
You have requested a ruling concerning Virginia's tax treatment when a common trust fund is converted to a regulated investment fund under Internal Revenue Code ("I.R.C.') Sec. 584(h)(1). Specifically, you are asking whether (1) Virginia follows the federal tax exempt treatment of the transaction, (2) Virginia considers the transaction taxable, or (3) if Virginia has an alternative treatment.
RULING
I.R.C. Sec. 584(h)(1) provides nonrecognition treatment of gains and losses for participants in a common trust fund when the common trust fund transfers substantially all of its assets to one or more regulated investment companies in exchange solely for stock in the company or companies to which the assets are transferred. To receive the nonrecognition treatment, the stock must be distributed by the common trust fund to participants in the common trust fund in exchange solely for their interests in the common trust fund.
Virginia's conformity to federal law is set forth in Code of Virginia Sec. 58.1-301, which provides the terms used in the Virginia income tax statutes will have the same meaning as used in the I.R.C. Therefore, federal adjusted gross income ("FAGI') and federal taxable income ("FTI'), which are the starting points for determining Virginia taxable income for individuals and corporations, respectively, is identical to that as defined by the I.R.C.
The Virginia taxable income of a resident individual equals FAGI along with the modifications enumerated in Code of Virginia Sec. 58.1-322. If a gain or loss from the conversion of a common trust fund to a regulated investment company is not recognized for federal income tax purposes, such gain or loss would not be included in FAGI, and would not flow through to Virginia taxable income.
Currently, there is no provision under Code of Virginia Sec. 58.1-322 which would add a gain or loss from the above transaction to FAGI to determine Virginia taxable income. Therefore, any gain or loss resulting from the conversion of a common trust fund to a regulated investment fund as described above is not taxed by Virginia.
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 *****.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner