Statutes, codes, and regulations
Virginia Administrative Code
Title 23 - TAXATIONAgency 10 - DEPARTMENT OF TAXATION
Chapter 120 - Corporation Income Tax
Section 23VAC10-120-350 - Consolidation of accounts

23 Va. Admin. Code § 10-120-350

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Current through Register Vol. 41, No. 8, December 2, 2024
Section 23VAC10-120-350 - Consolidation of accounts
A.
1. This section allows the Department of Taxation to consolidate the accounts of two or more related trades or businesses which are owned or controlled directly or indirectly by the same interests and liable to taxation under this chapter, if the Department determines such consolidation is necessary to accurately distribute or apportion gains, profits, income, deductions or capital between or among such trades or businesses.
2. If related trades or businesses have been conducted in such a manner that income is inaccurately stated, the Internal Revenue Service will usually apply IRC § 482 to make necessary adjustments. This section applies to situations in which the federal taxable income is accurately stated but the income from Virginia sources taxable by Virginia is inaccurate.
3. If one of the related trades or businesses is a corporation, § 58.1-446 of the Code of Virginia may also apply.
B.
1. "Trades or businesses" means any trade or business which keeps its own accounting records and which is required to make a separate report of its income to the Department of Taxation or any other taxing authority.
2. "Related." Trades or businesses are related if they are doing business with each other directly or indirectly. Such business dealings may consist of buying and selling of goods, services or other property, or borrowing or lending money or other property.
3. "Liable to taxation under this chapter." A trade or business is liable to taxation under this chapter if:
a. in the case of a sole proprietorship, the owner is subject to Virginia income tax;
b. in the case of a partnership, any of the partners is subject to Virginia income tax;
c. in the case of a corporation, it is subject to Virginia income tax;
d. in the case of an electing small business under Subchapter S of the Internal Revenue Code, any of the shareholders is subject to Virginia income tax;
e. in any case where an owner, partner or shareholder is an estate or trust, either the estate or trust is subject to Virginia income tax or any beneficiary is subject to Virginia income tax on distributions from such estate or trust.
4. "Owned or controlled directly or indirectly." A trade or business is owned or controlled directly or indirectly by another person or entity if such other person or entity has substantial influence over the manner in which the business is conducted. Substantial influence may be exerted by owners, shareholders, partners and others depending upon the facts and circumstances of each case.
5. "Same interests." Two or more related trades or businesses are owned or controlled directly or indirectly by the same interests if any one person or entity, or group of persons or entities acting together, has enough ownership or control of each trade or business to have substantial influence over the manner in which the business is conducted. The nature of the ownership or control interest does not have to be identical for each trade or business.
6. "Accurate distribution or apportionment." The purpose of this section is to assure that items of income, gain, profit, deductions and capital are properly distributed or apportioned between taxpayers who may be taxable at different rates, by different methods or in different states.
7. "Consolidate the accounts." If the Department finds it necessary to consolidate the accounts of two or more related trades or businesses then the accounts will be adjusted in order to accurately distribute or apportion gains, profits, income, deductions or losses of such trades or businesses.
8. "Request of the taxpayer." A taxpayer may request permission to consolidate accounts of related trades or businesses by filing an amended return using the proposed consolidation and shall attach an explanation of nature and cause of the distortion of income from Virginia sources and an explanation of why the consolidation of accounts is necessary in order to make an accurate distribution or apportionment of gains, profits, income, deductions or capital between or among such related trades or businesses. If the Department finds that consolidation is necessary, the tax shall be adjusted accordingly.

23 Va. Admin. Code § 10-120-350

Derived from VR630-3-445, eff. January 1, 1985.

Statutory Authority

§§ 58.1-203 and 58.1-445 of the Code of Virginia.