Could married taxpayers use a lower federal adjusted gross income than the IRS reported and claim an unreduced Virginia age deduction for 2013?

Plain-English summary

Virginia upheld a 2013 assessment after replacing the married taxpayers' reported federal adjusted gross income with the higher amount in the IRS record. Because Virginia starts with federal adjusted gross income, the Department said any dispute over that figure had to be resolved at the federal level.

The higher income also reduced the couple's Virginia age deduction. Only the husband qualified for the deduction in 2013. For a married couple, the cited rule reduced the otherwise available deduction by one dollar for each dollar that adjusted federal income exceeded $75,000.

The IRS figure exceeded that threshold, so Virginia increased taxable income, reduced the age deduction, and upheld the additional tax and interest.

Common questions

Could the taxpayers simply report a different federal income figure to Virginia? No. The ruling required them to refute the IRS record at the federal level.

How large was the potential age deduction? The cited 2013 rule allowed an eligible taxpayer up to $12,000, subject to income reduction.

Did both spouses qualify? No. The ruling states that only the husband was eligible for 2013.

Citations and references

• Va. Code §§ 58.1-301, 58.1-321, 58.1-322 D 5 b, and 58.1-341
• IRC §§ 86 and 6103(d)
• P.D. 12-53 (April 24, 2012)

Subject

The Department estimated the Taxpayers' 2013 Virginia tax liability based on the federal record.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-75

Original ruling text

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 individual income tax assessment issued to * (the “Taxpayers”) for the taxable year ended December 31, 2013.

FACTS

The Department received information from the Internal Revenue Service (IRS), that the Taxpayers, a husband and wife, may have income subject to Virginia income tax for the 2013 taxable year. The Department requested additional information from the Taxpayers. When no response was received, the Department issued an assessment. In response, the Taxpayers filed a return and claimed a deduction pursuant to Va. Code § 58.1-322 D 5 b (the “Age Deduction”).

The federal adjusted gross income (FAGI) reported by the Taxpayers did not match the FAGI reported by the IRS. As a result, the Department adjusted the return to match the federal record. In addition, the Department adjusted the Age Deduction to correspond with the FAGI on record with the IRS. The Department issued an assessment for additional tax and interest. The Taxpayers filed an appeal, contending their return was correct as filed.

DETERMINATION

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 fVirginia taxable income with federal adjusted gross income (FAGI). Thus, any 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.

Federal Adjusted Gross Income

Virginia Code § 58.1-341 provides that Virginia residents who are required to file a federal income tax return are also required to file a Virginia return unless the residents are exempt from filing under Va. Code § 58.1-321. When Virginia residents do not file a proper Virginia return, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will help in determining the tax liability. See P.D. 12-53 (4/24/2012).

The Department estimated the Taxpayers' 2013 Virginia tax liability based on the federal record. The return filed by the Taxpayers reported a lower FAGI than on record with the IRS. Because the Department used information provided by the IRS, any discrepancies in the FAGI must be refuted at the federal level.

Age Deduction

Under Va. Code § 58.1-322 D 5 b, taxpayers born after January 1, 1939 who have attained the age of 65 may claim a deduction for up to $12,000. However, the amount of this deduction is reduced by $1 for every $1 that adjusted FAGI exceeds $50,000 for single taxpayers or $75,000 for married taxpayers. For the purpose of calculating the deduction, adjusted FAGI means FAGI minus any benefits received under Title II of the Social Security Act and other benefits subject to federal income tax solely under IRC § 86.

Only the husband was eligible for the subtraction for the 2013 taxable year. The deduction was reduced because FAGI reported by the IRS exceeded $75,000. The enclosed schedule shows the computation of the subtraction.

CONCLUSION

Based on the information provided, the Department's adjustments were made in accordance with Virginia law and policy. In accordance with the information received from the IRS, the Department correctly increased the Taxpayers' FAGI and reduced the Age Deduction on the 2013 return. As such, the 2013 assessment is upheld and remains due and payable. The Taxpayers will receive an updated bill with accrued interest to date. The bill should be paid within 30 days of the bill date to avoid the accrual of additional interest.

The Code of Virginia and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department's website. 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/802.D