May 23, 2017
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will respond to your letter in which you seek correction of the fiduciary income tax assessment issued to the ***** (the “Taxpayer”) for the taxable year ended December 31, 2013.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer, an estate, may have been required to file a Virginia fiduciary income tax return for the 2013 taxable year. A review of the Department's records showed the Taxpayer had not filed a return. The Department issued an assessment based on the IRS information. The Taxpayer appeals the assessment, contending it erroneously reflects a capital gain that did not account for a step up in basis at the time of the death of ***** (the “Decedent”). The Taxpayer also asserts that it was not required to file a fiduciary income tax return because any capital gain was insignificant.
DETERMINATION
Fiduciary Income Tax Liability
Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Virginia Code will generally have the same meanings as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Virginia “conforms” to federal law because it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia. Therefore, the Department will not follow IRC provisions that contradict Virginia's statutes and regulations.
The Taxpayer contends that the capital gain resulted from the basis of the securities sold being reported at their purchase price. Generally, the basis of property passing from a decedent after her death is the fair market value of the property at the date of the decedent's death. See IRC § 1014(a)(1). The fair market value of the property included in a decedent's estate is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to by to sell and both having reasonable knowledge of relevant facts. See Treas. Reg. § 20.2031-1(b). The fair market value of property sold to the public is the price at which it would be sold at retail. Id. Accordingly, the fair market value of the Taxpayer's securities would be the price at which they could have been sold on the date of the Decedent's death.
Fiduciary Return Filing Requirements
The Taxpayer asserts that it was not liable for any fiduciary income tax because any capital gain from the sale of the securities was minimal. Virginia Code § 58.1-360 imposes an income tax on the Virginia taxable income of all estate and trusts at the rates for individuals prescribed in Va. Code § 58.1-320. Virginia Code § 58.1-361 A states, in pertinent part, that the Virginia taxable income of a resident estate or trust means its federal taxable income for the taxable year to which there shall be added or subtracted, as the case may be, the share of the estate or trust in the Virginia fiduciary adjustment. Title 23 of the Virginia Administrative Code (VAC) 10-115-50, in turn, specifies that the adjustments allowable to an estate or trust, set forth in Va. Code § 58.1-322, do not include those in § 58.1-322 D.
Every resident estate or trust is required to file a Virginia fiduciary income tax return if it is required to file a federal income tax return or it has any Virginia taxable income. See Va. Code § 58.1-381 A 1. Virginia Code § 58.1-320 provides a rate schedule for income tax ranging from a minimum of 2% to a maximum rate of 5.75% of a taxpayer's Virginia taxable income.
It appears that the Taxpayer may still have some fiduciary income tax liability even with the step up in basis. As such, the Taxpayer would be liable for Virginia fiduciary income tax at the rate corresponding to its Virginia taxable income as set out in the rate schedule provided in Va. Code § 58.1-360.
CONCLUSION
Based on statutory authority, any Virginia fiduciary income tax liability derived from the sale of the securities should reflect their stepped up basis at the time of the decedent's death. The Department's assessment was issued based on information available to the Department pursuant to Va. Code § 58.1-111. The Taxpayer may have additional information that may more accurately reflect its Virginia taxable income.
Accordingly, the Taxpayer should file a Virginia fiduciary income tax return for the 2013 taxable year. The return should be submitted within 30 days of the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *****. Once the return is received, it will be processed and the assessment adjusted accordingly. If the return is not received within the allotted time, the Department's assessment will be adjusted based on the information provided and collection actions will resume.
The Code of Virginia sections 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/1081.B