Could taxpayers deduct long-term care premiums paid in 2009 and 2010 on their 2011 Virginia return after the earlier refund periods expired?

Subject

Long-Term Health Care Insurance Premiums

Plain-English summary

Virginia allowed the 2011 deduction only for the long-term care premium actually paid in 2011. The taxpayers also put premiums paid in 2009 and 2010 on the 2011 return, but they used the cash receipts and disbursements method, which takes deductions in the year of payment.

The Virginia deduction was available for annual long-term care premiums when the individual had not claimed a federal deduction or the related Virginia credit. That did not permit several years of payments to be moved onto one later return.

The taxpayers asked whether they could instead amend 2009 and 2010. The three-year periods measured from those returns' original due dates had already expired, so Virginia upheld the assessment and said the earlier deductions could no longer be claimed.

What this means for you

• Track long-term care premiums by the calendar year actually paid.
• For cash-method taxpayers, claim the deduction on that year's return rather than saving payments for a later year.
• Confirm that the same premium was not deducted federally or used for the cited Virginia credit.
• Review an omitted deduction before the amended-return period expires.

Common questions

Q: Could 2009 and 2010 premiums be deducted on the 2011 return?

A: No. They belonged to the years in which they were paid.

Q: Could the taxpayers amend those earlier returns?

A: No. The three-year periods had expired.

Q: Was the 2011 premium deductible?

A: Yes, subject to the statutory conditions described in the ruling.

Citations and references

• Va. Code §§ 58.1-301, 58.1-322(D)(10), 58.1-339.11, 58.1-499(D), and 58.1-1823(A).
• 23 VAC 10-110-230(C).
• IRC § 461(a); Treas. Reg. § 1.461-1(a)(1).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-56

Original ruling text

April 3, 2015

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessment issued to * (the "Taxpayers") for the taxable year ended December 31, 2011.

FACTS

The Taxpayers filed a Virginia resident individual income tax return for the 2011 taxable year and claimed a deduction for long-term health care insurance premiums paid. Under review, the Department denied the portion of the deduction that was attributable to premiums paid in 2009 and 2010. As a result, an assessment was issued for additional tax and interest. The Taxpayers appeal the assessment, contending that they were permitted to claim a deduction for the premiums paid in 2009 and 2010 on their 2011 return.

DETERMINATION

Long-Term Health Care Insurance Premiums

Virginia Code § 58.1-301 provides that 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 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.

Virginia Code § 58.1-322 D 10 provides a deduction for "the amount an individual pays annually in premiums for long-term health care insurance, provided the individual has not claimed a deduction for federal income tax purposes, or ... a credit under [ Va. Code ] § 58.1-339.11."

Because Virginia taxable income is defined as FAGI with certain additions, subtractions and modifications, Virginia taxable income is based on the same accounting methods as FAGI. See Title 23 of the Virginia Administrative Code (VAC) 10-110-230 C. Generally, a deduction or credit must be claimed for the taxable year which is the proper taxable year under the method of accounting used for computing FAGI. See IRC § 461(a). Most individuals use the cash receipts and disbursements method of accounting. Under this method, amounts representing allowable deductions are taken into account for the taxable year in which paid. See Treas. Reg. § 1.461-1(a)(1). The Taxpayers have not indicated that they were using a different method.

The information provided indicates that the Taxpayers paid premiums in 2009, 2010 and 2011, but they claimed a deduction on their 2011 return for all the premiums paid. Under the cash receipts and disbursements method, however, the Taxpayers could only claim a deduction for the premium paid in 2011 on their 2011 return. As such, the Department properly denied that part of the deduction taken for premiums paid in 2009 and 2010.

Amended Returns

After the assessment was issued, the Taxpayers also asked whether they could amend their 2009 and 2010 returns to claim the deductions for the premiums paid in those years. The Taxpayers filed both of the returns prior to their respective original due dates of May 3, 2010 (May 1 was on a Saturday), and May 2, 2011 (May 1 was on a Sunday). The Taxpayers had three years from these dates to report the deductions and claim additional refunds. See Va. Code §§ 58.1-499 D and 58.1-1823 A. In each case, however, the three year statute of limitations for filing amended returns has expired.

CONCLUSION

In accordance with this determination, the assessment is upheld. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayers. No additional interest will accrue provided the outstanding assessment is paid within 30 days from the date of the revised bill. Further, the statute of limitations has expired for the Taxpayers to file amended 2009 and 2010 individual income tax returns.

The Code of Virginia sections and regulation 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/1-5869102047.M