500AB: Schedule of Related Entity Add Backs and Exceptions (2025)
Virginia · Virginia Tax · Used for tax years 2025
Virginia Schedule 500AB reports interest, royalties, and other intangible expense payments made to related entities. It calculates exceptions for qualifying intangible expense payments and the net addition, and is enclosed with Virginia Corporation Return, Form 500.
Who files this form
Virginia Schedule 500AB is used to report a taxpayer’s interest, royalty, and other intangible expense payments to related entities, along with amounts qualifying for the listed exceptions.
For tax year 2025, enclose Schedule 500AB with your Virginia Corporation Return, Form 500.
What you'll need
Have the following information ready:
- Your name as shown on the Virginia return, FEIN, and number of related entities.
- Each related entity’s name, FEIN, jurisdiction of organization, and jurisdiction of commercial domicile.
- Interest, royalty, and other intangible expense amounts paid to each related entity.
For any exceptions you claim, you will also need:
- Exception 1, Subject to tax: Related entities’ gross revenues, jurisdictions where tax was paid, type of tax, tax attributable to royalties and other intangible income, and income on which tax was paid. Enclose copies of the tax returns filed. Schedules and supplemental forms may be omitted.
- Exception 2, One-Third Revenue: Related entities’ gross revenues, the three unrelated parties paying the highest royalties, royalty amounts from those parties and all other unrelated parties, and qualifying payments made at comparable rates and terms.
- Exception 3, Conduit: The unrelated party’s name, royalties the related entity paid to that party for the same intangible property, and an explanation of the licensing transactions’ purpose.
Enclose a separate sheet if you need more space for an exception.
How to file
Enclose the completed Schedule 500AB with your 2025 Virginia Corporation Return, Form 500. The supplied form does not give a mailing address or e-file instructions.
To complete the schedule:
- Enter related entity information and payments in Part I. Total interest on Line 4a and intangible expenses on Line 4b.
- Complete the applicable exceptions in Part II. Transfer the totals for Exceptions 1, 2, and 3 to Part I, Lines 5, 6, and 7, respectively.
- Add Lines 5, 6, and 7 on Line 8. Also enter that total on Form 500, Question A.
- Subtract Line 8 from Line 4b to calculate Line 9.
- Add Lines 4a and 9 on Line 10. Also enter that total on Schedule 500ADJ, Section A, Line 3.
Common mistakes
- Leaving out the schedule: The form says to enclose Schedule 500AB with Form 500.
- Omitting tax return copies for Exception 1: Copies of the related entity’s applicable tax returns must be enclosed, although schedules and supplemental forms may be omitted.
- Counting tax as paid when income and deductions offset: For Exception 1, if the related entity filed a consolidated or combined return with the taxpayer in the other jurisdiction, the form says the recipient’s income and taxpayer’s deduction offset each other and no tax is deemed paid.
- Leaving the purpose unexplained for Exception 3: Describe the licensing transactions to demonstrate that avoiding tax was not their principal purpose.
- Missing required transfers: Enter Line 8 on Form 500, Question A, and Line 10 on Schedule 500ADJ, Section A, Line 3.
Questions people ask
Which jurisdictions must I list for Exception 1?
For each related entity covered by the claim, identify all states and foreign countries where it paid a tax measured by net income or capital.
What payments are reported for Exception 3?
Report royalties the related entity paid to an unrelated party for the same intangible property licensed to the taxpayer. Identify the unrelated party and explain the licensing transactions’ purpose.
What if I need more space for an exception?
Enclose a separate sheet. The form allows this for each of the three exceptions.
Where does the total exception amount go?
Add Part I, Lines 5, 6, and 7. Enter the total on Line 8 and on Form 500, Question A.