Could a Virginia S corporation file a unified nonresident return for only the shareholders who elected to join?

Plain-English summary

Virginia denied a unified return that would include only some eligible nonresident shareholders. Most of the S corporation's nonresident owners wanted to participate, but some did not.

The Department described unified filing as an optional administrative convenience that lets nonresident owners pay Virginia tax at entity level instead of filing separate returns. Va. Code § 58.1-395 gave the Department discretion to impose acceptable conditions.

One condition required all nonresident owners without other Virginia-source income to elect into the unified return. The S corporation offered only convenience as a reason to waive that condition, which was insufficient. Approval was denied.

Common questions

Q: Could only willing shareholders join?
A: No, not under the condition applied in this ruling.

Q: Why did Virginia deny the exception?
A: The taxpayer gave no basis beyond convenience.

Citations and references

• Va. Code § 58.1-395.
• Virginia Public Document 05-65 (April 26, 2005).

Subject

Alternative filing method to file a unified return denied.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-189

Original ruling text

November 15, 2012

Re: Request for Ruling: Individual Income Tax

Dear *:

This is in reply to your letter in which you request permission for * (the "Taxpayer") to use an alternative method for filing a unified nonresident individual return on behalf of its respective partners. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is a Virginia S Corporation that has nonresident shareholders. The majority of the Taxpayer's nonresident shareholders desire to participate in the filing of a Virginia unified nonresident individual income tax return, but some do not. The Taxpayer requests an alternative filing method that would allow it to file a unified return on behalf of only those qualifying nonresident individuals who elect to be included in the filing.

RULING

A unified return is an administrative convenience that allows nonresident partners to pay their respective Virginia tax at the entity level. The need for filing a separate Virginia return for each partner is eliminated. It is a privilege extended by the Department to taxpayers at the taxpayers' election. The convenience to the nonresident partners usually outweighs any benefits that may be lost.

Virginia Code § 58.1-395 grants discretionary authority to the Department to permit unified filing under terms acceptable to the Department. One of the conditions for filing a unified return provides that all nonresident owners without any other income from Virginia sources must elect to join in the unified filing. See Public Document (P.D.) 05-65 (4/26/2005).

The Taxpayer has provided no basis on which to grant an exception to this requirement other than the convenience to those nonresident shareholders who wish to be included. Accordingly, approval for the Taxpayer to file a unified return cannot be granted.

The Code of Virginia section and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions regarding this response, please contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4673155878.E