Tax Type
Individual Income Tax
Description
Salary repayment in prior year; Subtraction denied
Topic
Subtractions and Exclusions
Date Issued
08-19-1987
August 19, 1987
Re: Virginia Code §58.1-1821 Application
Individual Income Tax
Dear ******************
This is in reply to your letter of August 21, 1986 in which you make application for correction of the department's decision to deny your refund request, based upon the subtraction claimed on your Virginia income tax return for the salary repayment you were required to make in 1985.
FACTS
During 1985 you were required to repay a portion of the salary that you had received in 1984 and had reported as taxable income in 1984. For federal income tax purposes, you chose to account for this repayment on your 1985 federal income tax return under the provision of Internal Revenue Code §1341 which allowed you to claim a tax credit on your 1985 return based upon the amount of tax attributable to the 1984 overpayment. Because there is no provision in Virginia law similar to IRC §1341, you claimed a subtraction on your 1985 Virginia return equal to the amount of the repayment.
The subtraction was disallowed and an assessment was issued because there is no provision under Virginia Code §58.1-322 to allow such a subtraction. You have since paid the assessment and you are now appealing the disallowance of the subtraction and are requesting a refund.
DETERMINATION
In a recent ruling issued on August 5, 1987 (PD 87-190 attached), the department set out its policy pertaining to the Virginia income tax treatment of claim of right repayments qualifying for special treatment under IRC §1341. Based upon this ruling, you need to file an amended 1985 Virginia income tax return and in doing so, fully follow the provisions of IRC §1341 for Virginia income tax purposes.
A schedule should be attached to the Virginia return detailing the computation of the Virginia tax consequences of the repayment. In addition, a copy of the schedule attached to the federal return, used to compute the federal tax consequences of the repayment, should also be attached to the Virginia return. The amount of tax benefit derived from the repayment should be included on the line of the Virginia return designated for Virginia income tax withheld. Please mail this return to:
Virginia Department of Taxation
Technical Services Section
P. O. Box 6-L
Richmond, Virginia 23282
After the computations have been reviewed, the appropriate refund will be issued.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner