Virginia doesn't let federal Civil Service Retirement System (CSRS) retirees subtract their CSRS pension the same way Social Security is subtracted -- can I still get a full refund by arguing this is unlawful discrimination against CSRS retirees?

Plain-English summary

A Virginia resident who retired under the federal Civil Service Retirement System (CSRS) filed a protective refund claim under Va. Code § 58.1-1824 seeking a refund of all Virginia individual income tax he had paid for the 2021 and 2022 taxable years. His argument: Virginia's tax scheme unlawfully discriminates against CSRS retirees -- presumably because Virginia allows a subtraction for Social Security benefits but CSRS retirees (who generally didn't pay into Social Security through their federal employment) don't get the same treatment for their CSRS pension.

This wasn't a new question for this particular taxpayer. The Department's determination laid out the litigation history:

• In 2015, the same taxpayer brought this exact discrimination argument before the Circuit Court of the City of Chesapeake (Karl Edward Beisel v. The Virginia Department of Taxation and Craig Burns, Case No. CL 15-2). The circuit court found no unlawful discrimination. That order was itself published as P.D. 16-7 (2/23/2016).
• The taxpayer appealed to the Supreme Court of Virginia, which refused to hear the appeal, finding no reversible error in the circuit court's judgment.
• The taxpayer later filed a second lawsuit covering later tax years (Circuit Court of the City of Richmond, Case No. CL 20-4185, 2021), which was dismissed after the Commonwealth's motion to strike the evidence at trial succeeded.

Because Virginia's court system had already directly and repeatedly addressed this specific claim and found no discrimination, the Department denied the refund request outright -- there was no unresolved legal question left to decide administratively. The Department also stated it would vigorously defend against any further attempts by this taxpayer to relitigate the same issue in court.

What this means for you

Federal CSRS retirees who believe Virginia's tax treatment is unfair

This ruling reflects the outcome of actual litigation on this exact question, twice, with the taxpayer losing both times (including a refused Supreme Court of Virginia appeal). If you're considering the same argument, know that Virginia courts have already rejected it -- an administrative refund claim citing the same theory isn't likely to succeed given this history.

Anyone filing a protective refund claim under Va. Code § 58.1-1824 based on a constitutional or discrimination theory

Check whether the argument has already been litigated to a final result in Virginia's courts. The Department treats a settled court outcome as controlling and won't revisit the same legal question through the administrative appeals process.

Common questions

Q: Has a Virginia court ever ruled on whether Virginia's tax treatment of CSRS retirees is discriminatory?
A: Yes -- according to this ruling, the Circuit Court of the City of Chesapeake found no unlawful discrimination in 2015, and the Supreme Court of Virginia refused to hear an appeal of that decision, finding no reversible error. A second lawsuit on the same theory for later years was later dismissed at trial.

Q: Can I still get a refund of Virginia income tax as a CSRS retiree by arguing discrimination, given this ruling?
A: Based on this ruling, the Department will deny such a claim where the same legal theory has already been litigated and rejected by Virginia's courts.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-1824 -- protective refund claim procedure invoked by the taxpayer

Court decisions and prior rulings referenced (described here, not linked): Karl Edward Beisel v. The Virginia Department of Taxation and Craig Burns, Circuit Court of the City of Chesapeake, Case No. CL 15-2 (2015) (order reported as P.D. 16-7, 2/23/2016) -- found no unlawful discrimination against CSRS retirees; Supreme Court of Virginia, record #151221 (11/19/2015) -- refused the petition for appeal, finding no reversible error; Karl Edward Beisel v. The Virginia Department of Taxation, Circuit Court of the City of Richmond, Case No. CL 20-4185 (2021) -- a second suit on later taxable years, dismissed on the Commonwealth's motion to strike the evidence at trial. The ruling's Related Documents list also cites P.D. 20-10, described here in prose rather than linked, per this corpus's no-invented-cross-links convention.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-127

Original ruling text

November 30, 2023

Re: § 58.1-1824 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you claim a refund of individual income tax issued to * (the “Taxpayer”) for the taxable year ended December 31, 2023.

FACTS

The Taxpayer, a Virginia resident, seeks a refund of all Virginia income tax that he paid for the taxable years ended December 31, 2021, and 2022, on the basis that Virginia unlawfully discriminates against federal Civil Service Retirement System (CSRS) retirees.

DETERMINATION

This matter has been addressed by two Virginia circuit courts, and in neither case was unlawful discrimination found. See Karl Edward Beisel v. The Virginia Department of Taxation and Craig Burns, Circuit Court of the City of Chesapeake, Case No. CL 15-2 (2015), the order for which was reported as Public Document (P.D.) 16-7 (2/23/2016). The Taxpayer subsequently appealed that case to the Supreme Court of Virginia. The Court, however, refused the petition for appeal, ruling that there was no reversible error in the circuit court’s judgment. See SCV record #151221 (11/19/2015). Subsequently, the Taxpayer filed another suit involving later taxable years. That case was dismissed on the Commonwealth’s motion to strike the evidence at trial. See Karl Edward Beisel v. The Virginia Department of Taxation , Circuit Court of the City of Richmond , Case No. CL 20-4185 (2021).

Because this issue has been addressed by the Virginia court system, the Taxpayer’s refund claim will not be granted. Further, because this issue has been addressed by Virginia’s courts, the Commonwealth will vigorously defend any further attempts by the Taxpayer to litigate this matter in court.

If you have any questions regarding this response, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at (804) ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4670.M

Related Documents

16-7

20-10