W. Va. Code R. § 110-21-37

Current through Register Vol. XLI, No. 50, December 13, 2024

Section 110-21-37 - Nonresident Partners

37.1. Nonresident Partner Defined. - A nonresident partner is an individual who is a partner in a West Virginia partnership or a partner in any partnership doing business in West Virginia where that individual does not qualify as a resident individual under the provisions of W. Va. Code '11-21-7.

37.2. Partnership Doing Business In West Virginia Defined. - A partnership is doing business in West Virginia if it has any revenue from West Virginia sources, or if it engages in any purposeful revenue generating activity with the object of direct or indirect gain or economic benefit in West Virginia.

37.3. Partnership Income And Deductions Derived From West Virginia Sources. - The West Virginia adjusted gross income of a nonresident partner of any partnership shall include his or her distributive share of all partnership items of income, gain, loss and deduction which entered into his or her federal adjusted gross income as filed for the taxable year in question to the extent that the amount or amounts of such items are derived from or connected with West Virginia sources; that is, from real or tangible personal property having an actual situs in West Virginia or from a business, trade, profession, or occupation carried on in this State, as determined under Section 32 of these regulations.

37.4. Special Rules As To West Virginia Sources. - In determining the sources of a nonresident partner's share of partnership income, as either within or without West Virginia the following shall apply:

37.4.1. No recognition or tax effect shall be given to a provision in the partnership agreement which characterizes payments to the partner as being employee compensation or other consideration paid or distributable for the use of capital of a partner.

37.4.2. Similarly, no tax effect shall be given to a provision in the partnership agreement which allocates to the nonresident partner, as income or gain from sources outside West Virginia, a greater proportion of his distributive share of partnership income or gain than the ratio of partnership income or gain from sources outside West Virginia to partnership income or gain from all sources.

37.4.2.1. Example. - X is a nonresident partner of a partnership located in West Virginia, sixty percent (60%) of the business of which is from West Virginia sources. X's total distributive share of partnership income from all sources is five thousand dollars ($5,000). X is required to report on his West Virginia nonresident income tax return three thousand dollars ($3,000) (60% of $5,000), as his partnership distributive share, even though, under special provisions of the partnership agreement, his share of the total West Virginia income of the partnership may have been fixed at less than three thousand dollars ($3,000).

37.4.3. Similarly, no tax effect shall be given to a provision in the partnership agreement which allocates to the nonresident partner a greater proportion of a particular partnership item of loss or deduction connected with West Virginia sources than his proportionate share for federal income tax purposes of partnership loss or deduction generally. If, for example, the proportionate share of a nonresident partner of partnership losses is generally fifty percent (50%) for federal income tax purposes, he is not permitted to deduct on his West Virginia income tax return more than fifty percent (50%) of any particular partnership loss or deduction connected with West Virginia sources, irrespective of any special provision of the partnership agreement allocating a larger percentage of the specific loss or deduction to him.

37.5. Partner's Modifications.

37.5.1. In determining the West Virginia adjusted gross income of a nonresident partner, any modification described in W. Va. Code '11-21-12 and Section 12 of these regulations which relates to a partnership item of income, gain, loss or deduction shall be made with respect to such partner's distributive share of the partnership. The modifications covered by these Sections do not apply to any item a nonresident himself receives or incurs directly, and these Sections do not apply to any item which, for federal income tax purposes, is not treated as a partnership item.

37.5.2. The total applicable modification of any partnership item of income, gain, loss, or deduction shall be set forth on the partnership return, together with the respective portion thereof distributable to each partner. Where any particular modification pertains to an item includible in federal adjusted gross income, the partnership return shall show each nonresident's portion thereof derived from or connected with West Virginia sources.

37.6. Alternate Methods. - Upon written application, the Tax Commissioner may authorize the use of such other methods of determining a nonresident partner's portion of partnership items derived from or connected with West Virginia sources as he deems to be appropriate and equitable. Whenever a nonresident partner's distributive share of partnership items of income, gain, loss or deduction are so determined, any of the modifications relating thereto shall be similarly determined.

W. Va. Code R. § 110-21-37