When a company merges mid-year and has to file a short-period return, what's the actual Virginia filing deadline?

Plain-English summary

A corporation that had filed Virginia returns on a combined basis (and federal returns on a consolidated basis) completed an all-stock merger of equals on April 3, 2020, becoming a wholly owned subsidiary of the other company. That triggered a requirement to file a short-period return covering just January 1 through April 3, 2020. The taxpayer made a Virginia extension payment on April 14, 2021, and filed the short-period return on November 15, 2021. The Department assessed a late-filing penalty, reasoning the return had been due back on August 18, 2021 -- and the company appealed, saying November 15, 2021 was actually the correct, timely due date.

The key issue was figuring out the real federal due date first, since Virginia's corporate due date and extensions are pegged to the federal one. Normally a short-period return would be due the 15th day of the fourth month after the short year closes -- here, that would have been around August 17, 2020. But federal consolidated-return regulations have a special rule: when a company joins a new consolidated group mid-year (as happened here via the merger), its short-period return's due date follows the surviving parent's consolidated group return due date, not the ordinary short-year calculation. The parent company's federal consolidated return was due April 15, 2021, and both companies had filed timely federal extensions, pushing the federal due date to October 15, 2021. Virginia's own extension rule then adds 30 days after the (extended) federal due date -- landing on November 15, 2021, which is exactly when the company filed. So the return was timely, the late-filing penalty was reversed, and any penalty already paid would be refunded. (A separate late-payment penalty issue was noted as not yet assessed, so it wasn't decided here.)

What this means for you

Corporations completing a merger or ownership change mid-year

Don't assume a short-period return triggered by a merger is due on the "ordinary" short-year schedule (fourth month after the short year ends). If the merger folds your company into a new federal consolidated group, the federal due date for that short-period return follows the surviving parent's consolidated return deadline (as extended) -- which can be many months later than you'd expect from the short-year math alone.

Accountants and tax professionals handling merger-year returns

Work out the correct federal short-period due date under Treas. Reg. § 1.1502-76(b)(4) and (c)(1) first, then apply Virginia's extension rule (30 days after the federal due date, as extended, or six months, whichever is later) to get the real Virginia deadline. Getting the federal reference date wrong is exactly what produced the erroneous penalty assessment here.

Companies who've already paid a penalty they believe was wrongly assessed

This ruling is a template for the kind of documentation that resolves a due-date dispute: showing the parent's federal consolidated return due date, the timely federal extension filings for both companies, and tracing Virginia's extension rule from that federal date. The Department directly confirmed a refund of any penalty amount already paid once it agreed the return was timely.

Common questions

Q: What's the normal Virginia due date for a short-period corporate return?
A: The 15th day of the fourth month following the close of the short taxable year, same as any other corporate return, subject to extension under Va. Code § 58.1-453.

Q: Does a merger change that due date?
A: It can. If the merger makes your company part of a new federal consolidated group, federal rules tie your short-period return's due date to the surviving parent's consolidated return due date (as extended) rather than the ordinary short-year calculation -- and Virginia's due date follows that federal date plus 30 days (or six months from the short year's close, whichever is later).

Q: What if I already paid a late-filing penalty that turns out to have been based on the wrong due date?
A: As happened here, once the Department recalculates the correct due date and confirms the return was timely, the penalty is abated and any amount already paid is refunded.

Q: Was a late-payment penalty also at issue in this ruling?
A: No -- the Department noted that no late-payment penalty had been assessed for this tax year as of the ruling, so that issue wasn't decided; a penalty-waiver request would be available if one is assessed later.

Citations and references

• Va. Code § 58.1-440 (federal/Virginia taxable year conformity)
• Va. Code § 58.1-441 (Virginia corporate return due date)
• Va. Code § 58.1-453 (Virginia extension rule)
• Treas. Reg. § 1.1502-76(b)(4), (c)(1) (federal short-period return due date after ownership change)
• Va. Code § 58.1-105 (penalty waiver for reasonable cause)
• P.D. 91-265 (10/22/1991); P.D. 97-171 (4/14/1997) (related prior rulings)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-79

Original ruling text

July 6, 2023

Re: § 58.1-1821 Application: Corporate Income Tax

Dear *:

This will respond to your letter in which you seek correction of an assessment of late filing penalties issued to * (the “Taxpayer”) for the taxable year ended April 3, 2020.

FACTS

The Taxpayer filed calendar year income tax returns on a combined basis for Virginia income tax purposes and on a consolidated basis for federal income tax purposes. On April 3, 2020, the Taxpayer completed an all stock merger of equals with Company A. Subsequent to the merger, Taxpayer became a wholly owned subsidiary of Company A. As a result, the Taxpayer was required to file a return for the short taxable year ending April 3, 2020.

The Taxpayer made a Virginia extension payment on April 14, 2021, and filed the short period return on November 15, 2021. The Department assessed a late filing penalty based on its determination that the return was due on August 18, 2021. The Taxpayer appeals, contending that the return was timely filed on November 15, 2021. The Taxpayer also requests that any late payment penalty be abated because its estimated payments were based on the best available information.

DETERMINATION

Assessment of Late Filing Penalty

Virginia Code § 58.1-440 requires that corporations use the same taxable year for Virginia income tax purposes as for federal income tax purposes. Accordingly, when a short period return is required for federal tax purposes, a similar return must be filed for Virginia tax purposes.

Virginia Code § 58.1-441 requires Virginia income tax returns to be filed on or before the fifteenth day of the fourth month following the close of the taxable year, and such returns may be extended subject to the provisions of Virginia Code § 58.1-453.

In the instant case, the short period return for the taxable year ended April 3, 2020, would normally have been due on August 17, 2020 (August 15 was a Saturday). Virginia Code § 58.1-453, however, grants an extension of 30 days after the federal due date, as extended, or six months, whichever is later, provided a Virginia extension is filed.

Pursuant to Treasury Regulation §1.1502-76(b)(4) and § 1.1502-76(c)(1), the federal due date for filing a short period return subsequent to certain changes in ownership is the same as the due date for the group’s consolidated return, with extensions. In this case, Company A’s federal consolidated return was due April 15, 2021, and both the Taxpayer and Company A submitted timely extension requests.

Accordingly, the federal due dates for the Company A consolidated return and the Taxpayer’s short period return were extended to October 15, 2021. The extended due date for the Taxpayer’s Virginia return for the taxable year ended April 4, 2020, was thus November 15, 2021, 30 days after the federal due date. See also, Public Document (PD.) 91-265 (10/22/1991) and P.D. 97-171 (4/14/1997).

Assessment of Late Payment Penalty

Virginia Code § 58.1-1 05 authorizes the Tax Commissioner to accept an offer in compromise and to settle claims of disputed or doubtful liability, or doubtful collectibility and to waive penalty for reasonable cause. To date, a late payment penalty has not been assessed with respect to the taxable year ended April 3, 2020.

CONCLUSION

For the reasons discussed above, the Taxpayer’s Virginia corporate income tax return for the short taxable year ended April 3, 2020, was due November 15, 2021. Because the Taxpayer filed the return on that date, the late filing penalty was erroneously assessed and will be abated. A review of the Department’s records indicates the Taxpayer has paid a portion of the penalty and a refund will be issued as warranted. If the Taxpayer is subsequently assessed a late payment penalty, a penalty waiver may be requested at that time.

The Code of Virginia sections and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings. At ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4217.X

Related Documents

91-265

97-171