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Ezel / Tax Rulings / VA
VA P.D. 11-170 Individual Income Tax 2011-09-29

When spouses file separate Virginia returns and one is a nonresident, what income measure allocates shared deductions and exemptions?

Short answer: Federal adjusted gross income was the example Virginia used for proportional allocation. Each spouse first had to account separately for income, deductions, and exemptions. Only items that could not be separately traced were divided proportionally by income attributable to each spouse. Assessments using all income instead of FAGI reflected an incorrect policy interpretation and could be abated or refunded.

Apply this to your situation

This page answers the general question as of 2011. Ezel answers yours, under current Virginia tax law, with citations.

Currency note: this ruling is from 2011
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Virginia Tax Commissioner policy response concerning separate Virginia returns where one spouse is a nonresident. It gives general allocation guidance rather than resolving a named taxpayer's completed audit. Results depend on which items can be separately accounted for, each spouse's FAGI, filing status, records, the assessment or refund period, and current law and instructions. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

Virginia said shared itemized deductions and personal exemptions should be allocated using each spouse's share of federal adjusted gross income, not a broader “all income” measure. This applied when a married couple filed separate Virginia returns and one spouse was a nonresident.

The first step was separate accounting: assign each item of income, deduction, and exemption to the spouse to whom it actually belonged. Only items that could not be separately accounted for were divided proportionally.

The ruling acknowledged that some auditors may have used all income instead of FAGI. It directed affected taxpayers to write the Department. Incorrect assessments would be abated, and taxpayers who had already paid could apply for refunds.

What this means for you

  • Trace deductions and exemptions separately before using a ratio.
  • Use each spouse's FAGI share for items that cannot be separately accounted for.
  • Review audit workpapers for an incorrect broader-income denominator.
  • Seek abatement or refund if an assessment used the wrong allocation method.

Common questions

Q: Must every deduction be allocated by ratio?
A: No. Separate accounting comes first.

Q: What ratio applied to untraceable items?
A: Each spouse's share of income, illustrated by federal adjusted gross income.

Q: What if an auditor used all income?
A: The ruling called that interpretation incorrect and allowed abatement or refund requests.

Citations and references

  • Va. Code § 58.1-326.
  • 23 VAC 10-110-190.
  • Virginia Individual Income Tax Instructions quoted in the ruling.

Subject

itemized deductions and personal exemptions; One spouse is a nonresident.

Source

Original ruling text

September 29, 2011

Dear *:

This is in response to your inquiry regarding the Department of Taxation's (the "Department") policy regarding a husband and wife who file separate Virginia income tax returns. Specifically, you ask whether the Department requires a nonresident spouse to allocate itemized deductions based on all income or on federal adjusted gross income.

When one spouse is a nonresident, Virginia law ( Va. Code § 58.1-326) provides that the Department is to determine, how the resident spouse is to compute Virginia taxable income. The Department has set forth is requirements in its regulations and forms. Virginia Regulation 23 VAC 10-110-190 provides:

In the case of a married couple, one of whom is a nonresident of Virginia filing separately, each spouse must account separately for items of income deductions, and exemptions. Where such items cannot be accounted for separately, deductions and personal exemptions must be proportionally allocated between each spouse based upon the income attributable to each.

The Virginia Individual Income Tax Instructions specify that:

If a joint federal return was filed and you are filing separate returns in Virginia (Filing Status 3) itemized deductions that cannot be accounted for separately must be allocated proportionately between spouses based on each spouse's share of the income ( e.g. , federal adjusted gross income).

Recently, however, you point out that you believe that some auditors have required that itemized deductions be proportionally allocated based on all income of each spouse, not his or her federal adjusted gross income. If any of your clients have received an assessment based upon this incorrect interpretation of the Department's policy, they should send a letter to the Department at the following address: Virginia Department of Taxation, Office of Customer Services, P.O. Box 1115, Richmond, VA 23218-1115. Incorrect assessments will be abated and any taxpayer who has already paid such an assessment may apply for a refund at the same address.

I appreciate you bringing this to my attention and if you have any further questions, you may direct them to the above address.

Sincerely,

Craig M. Burns

Tax Commissioner

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