May 8, 2015
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the Virginia individual income tax assessment issued to ***** (the "Taxpayer) for the taxable years ended December 31, 2010. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer claimed a subtraction for a death benefit annuity for the 2010 taxable year. The source of the subtraction was a Form 1099R from a federal retirement plan. Under audit, the Department disallowed the subtraction and issued an assessment for additional tax and interest.
The Taxpayer paid the assessment but filed an appeal, contending she was advised by the Department that she qualified for the subtraction. She further argues the auditor's rationale for issuing the assessment was not included in the tax form instructions until 2011. The Taxpayer also protests the Department's authority to make retroactive changes to form instructions.
DETERMINATION
Virginia Code § 58.1-301 provides that the terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia conforms to federal law in that it starts the computation of Virginia taxable income with the federal adjusted gross income (FAGI). Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322.
Pursuant to Va. Code § 58.1-322 C 32, a taxpayer is allowed a subtraction of "the death benefit payments from an annuity contract that is received by a beneficiary of such contract and is subject to federal income taxation." In order to qualify for the subtraction, a death benefit payment must meet three requirements. First, the source of the payment must be an annuity contract between a customer and an insurance company. Second, the annuity payment must have been awarded to the beneficiary in a lump sum. Finally, the payment must be subject to taxation at the federal level. See Public Document (P.D.) 09-36 (3/31/2009), P. D. 10-63 (5/7/2010), P.D. 12-76 (5/9/2012) and P.D. 14-107 (7/17/2014).
Interpretation of Statute
Virginia Code § 58.1-203 grants the Tax Commissioner power to issue rulings related to the interpretation and enforcement of the laws governing taxes administered by the Department. See P.D. 97-497 (12/10/1997). The Virginia Supreme Court has consistently held that the construction of a tax statute by a state official charged with its administration is entitled to great weight. See Webster v. Department of Taxation, 219 VA. 81, 84-85, 245 S.E. 2d 252, 255 (1978) and Winchester TV Cable v. State Tax Com., 216 Va. 289, 290, 217, S.E. 2d 885, 889 (1975).
Further, by reason of their character as legislative grants, statutes relating to deductions and subtractions allowable in computing income and credits against a tax liability must be strictly construed against the taxpayer and in favor of the taxing authority. See Howell's Motor Freight, Inc., et al. v. Virginia Department of Taxation, Circuit Court of the City of Roanoke, Law No. 82-0846 (10/27/1983).
Tax Form Instructions
The auditor provided the Taxpayer a copy of the Department's prior ruling letter, P.D. 13-227 (12/18/2013) as guidance for future application of the death benefit payment subtraction. The Taxpayer argues that the Department's return instructions did not reflect such policies until the 2011 taxable year.
The Department has previously addressed this issue in P.D. 13-149 (7/31/2013). The instructions for the taxable year at issue stated that the death benefit payments subtraction is allowed to the extent that such benefits, which were received from an annuity contract, are subject to federal taxation. Tax form instructions merely paraphrase the statute and generally make no reference to the requirements for reporting amounts on a particular line of a return.
Taxpayer Advice
The Taxpayer asserts the Department, via telephone, confirmed her interpretation of the death benefit subtraction instructions. Virginia Code § 58.1-1835 authorizes the Tax Commissioner to abate an assessment or a portion of an assessment that is attributable to erroneous advice furnished to the taxpayer in writing by an employee of the Department acting in his official capacity. In this case, however, there is no record of the questions presented to the Department's representative. Furthermore, the Department may have provided advice by telephone, not in writing. Accordingly, there is no basis for relief under Va. Code § 58.1-1835.
CONCLUSION
Because the Taxpayer's distribution is derived from a pension plan, the Taxpayer did not qualify for the death benefit subtraction. As such, the Department's assessment for the 2010 taxable year is correct. The Taxpayer has paid the assessment; therefore, no further action is required.
The Code of Virginia sections, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5660551618.D