Income/Franchise:
Virginia: Administrative Ruling Says Loan Interest to Purchase Stock is Not Subject to Intercompany Addback Statute

Public Document No. 24-129, Va. Dept. of Tax. (12/11/24). The Virginia Department of Taxation (Department) issued a ruling in the taxpayer’s favor that its intercompany interest expenses derived from the payment of loan interest to purchase stock was not related to the acquisition of intangible property as defined for purposes of Virginia’s intercompany expense “addback statute” under Virginia Code § 58.1-402 B 9, and therefore it was not required to add back the interest expenses on its Virginia corporate income tax return. On a separate issue of “first impression,” the Department also held that based on federal income tax principles and caselaw, as well as the underlying facts in this case, the taxpayer’s original filed Virginia corporate income tax return was deemed timely filed for extension purposes even though a schedule (specifically, Virginia Schedule 500AB, which details payments that a taxpayer makes to related entities that are subject to “add-back” under Virginia Code § 58.1-402 B 8) was mistakenly omitted from the filing. In doing so, the Department reasoned that although it was not possible to see the “per entity detail of how the add-back additions were computed” until the taxpayer included the missing schedule, the original filing sufficiently “included all the figures needed to compute its Virginia income tax liability.” Please contact us with any questions.