Tax Type
Individual Income Tax
Description
Interest from federal obligations received from a mutual fund
Topic
Subtractions and Exclusions
Taxable Income
Date Issued
02-21-1989
February 21, 1989
Re: Individual Income Tax
Interest Exempt from State Taxation
Dear**************
This is in response to your recent telephone call regarding what information is sufficient to document the subtraction from federal adjusted gross income for interest or dividends on obligations of the United States received from a regulated investment company (mutual fund).
RULING
The provisions relating to the subtraction from federal adjusted gross income allowed under Virginia Code §58.1-322 for interest or dividends on obligations of the United States are further detailed in Virginia Regulation (VR) 630-2-322 (copy enclosed). This regulation sets forth the department's policy regarding interest and dividends from regulated investment companies. § (C)(2) of this regulation provides:
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- When taxable income is commingled with exempt income all income is presumed taxable unless the portion of income which is exempt from Virginia income tax can be determined with reasonable certainty and substantiated.
- When taxable income is commingled with exempt income all income is presumed taxable unless the portion of income which is exempt from Virginia income tax can be determined with reasonable certainty and substantiated.
It is our understanding that the standard practice in the industry is to compute and to credit dividends monthly; therefore, generally the department requires that an investor in such a fund provide a breakdown of the dividends earned on a monthly basis. However, it is not the department's policy to require taxpayers to provide a breakdown of the dividends earned on a monthly basis, if such a breakdown cannot be furnished to the taxpayer by the mutual fund. Nor is it the department's policy to deny a subtraction for exempt mutual fund interest if the fund's report to the taxpayer, whether on a monthly or less frequent basis, segregates taxable and exempt interest on a percentage or average percentage basis.
The instructions provided with the 1988 Virginia Individual Income Tax Forms are only intended to be a general guide and to address the questions of the typical taxpayer. Since the typical taxpayer receives information from his investment in a mutual fund that would allow him to provide the department with a monthly breakdown of dividends earned, the instructions only address that situation. The instructions are not intended to require taxpayers to provide the department with information that is not available to them from the mutual fund in which they invest.
If you have any further questions, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner