Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 120 - Corporation Income Tax › Section 23VAC10-120-320 - Consolidated and combined returns; general

Current through Register Vol. 40, No. 24, July 15, 2024
A. [Reserved.]
B. Overview. In the first year two or more
				members of an affiliated group of corporations, as defined in § 58.1-302
				of the Code of Virginia, are required to file Virginia returns, the group may
				elect to file separate returns, a consolidated return or a combined return. All
				returns for subsequent years must be filed on the same basis unless permission
				to change is granted by the Department of Taxation. The group may elect to file
				on a basis different from its federal return(s). Other members of the
				affiliated group of corporations which become subject to Virginia income tax in
				subsequent years must conform to the initial election made by the group unless
				permission to change is granted by the department.
C. Affiliate. Corporations actually included
				in a consolidated federal return shall be presumed to satisfy the ownership
				criteria of the definition of "affiliated" in § 58.1-302 of the Code of
				Virginia and
				23VAC10-120-20. A corporation
				included in a federal consolidated return but which is not subject to Virginia
				income tax is not an affiliate for Virginia purposes.
D. Federal taxable income.
1. When the affiliated group files federal
				and Virginia returns on a different basis, or files a federal consolidated
				return including corporations which are not subject to Virginia income tax, the
				"federal taxable income" for Virginia purposes of the affiliated group and of
				each member of the group shall be computed in accordance with the following
				principles:
a. If the affiliated group files a
				consolidated Virginia return:
(1) The federal
				taxable income (before and after deductions for net operating losses, net
				capital losses, and charitable contributions) of the affiliated group shall be
				computed as if a federal consolidated return had been prepared that included
				only the members included in the Virginia consolidated return for the current
				year. If a federal deduction for a net operating loss, net capital loss or
				charitable contribution in the current year affects or is affected by another
				taxable year, then a similar computation shall be made for every such taxable
				year beginning on and after the year for which an election was made, or
				permission granted, to file a consolidated Virginia return, and federal taxable
				income shall be computed on a separate basis for every such taxable year before
				consolidated Virginia returns were filed.
(2) The federal taxable income shall be
				computed without giving effect to the deferral of any gain, loss, or deduction
				arising from a transaction with a corporation not subject to Virginia income
				tax.
(3) Any deferred gain, loss or
				deduction arising from a prior transaction with an affiliate shall be
				recognized for Virginia purposes when the affiliate subsequently ceases to be
				an affiliate or when the asset involved is transferred to a corporation which
				is not an affiliate.
(4) The
				group's federal taxable income for Virginia purposes shall be computed as if
				each affiliate's losses incurred before joining the Virginia consolidated
				return had been incurred in a separate return year. This provision shall not
				operate to create a separate return limitation year within the meaning of U.S.
				Treasury Reg. § 1.1502-21 or § 1.1502-22 if all three of the
				following conditions are satisfied with respect to the taxable year of the
				loss: the affiliate was subject to Virginia income tax and its loss was
				reported on a timely filed Virginia return; the affiliate satisfied the
				ownership requirements of the definition of "affiliated" in § 58.1-302 of
				the Code of Virginia on every day of the taxable year with respect to the group
				to which the loss will be carried; and either the affiliate was prohibited from
				being included in a consolidated Virginia return filed by other affiliates
				solely because of its apportionment factor, or permission to file a
				consolidated return was granted pursuant to the provisions of
				23VAC10-120-324 A 3.