Rulings of the Tax Commissioner

April 28, 2022

Re:    § 58.1-1821 Appeal: 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, 2020.

FACTS

The Taxpayers, a husband and wife, filed a joint resident individual income tax return for the 2020 taxable year, claiming a subtraction for unemployment benefit income. Under review, the Department disallowed a portion of the subtraction and issued an assessment. The Taxpayers appeal, contending that they used tax preparation software to prepare their return and that the Department should abate the assessment because they relied on the software to complete their Virginia return properly. 

DETERMINATION

Unemployment Benefit Subtraction

Virginia Code § 58.1-301 provides, with certain exceptions, 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. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia. For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income (VATI) with federal adjusted gross income (FAGI). Income properly 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 Chapter 3 of Title 58.1 of the Code of Virginia.

Virginia Code § 58.1-322.02 provides for the subtraction from FAGI of certain listed income for purposes of determining VATI. All of the described subtractions, however, are allowable only to the extent the income was included in FAGI. See Virginia Code § 58.1-322.02.

Virginia Code § 58.1-322.02 17 provides for a subtraction from FAGI of unemployment benefits taxable pursuant to § 85 of the IRC. Pursuant to IRC § 85(c), certain taxpayers were eligible to exclude from FAGI up to $10,200 of unemployment benefits received in the 2020 taxable year. The Taxpayers properly excluded from FAGI $10,200 of their unemployment benefits received that year. When computing their VATI, however, they subtracted the total amount of unemployment benefits received, rather than subtracting only the amount of benefits that were included in their FAGI.

Tax Preparation Software

The Taxpayers do not dispute that they subtracted more than was allowable, rather they contend they should not be penalized for the error caused by their tax preparation software. The Department recognizes that tax preparation software is commonly used by tax professionals and individuals for tax return completion. The fact that a particular software program has been approved by the Department, however, is not meant to imply computational accuracy. Software presented to the Department for approval is reviewed to test conformity to the Department’s processing requirements. The Department provides test case specifications, but does not guarantee computational accuracy of the software. See Public Document (P.D.) 13-50 (4/24/2013).

CONCLUSION

The provisions of Virginia Code § 58.1-322.02 17 are clear and do not provide the Department with any discretion to allow the Taxpayers to deduct unemployment benefits that were not included in FAGI. Accordingly, although I empathize with your situation, the reviewer’s adjustment was correct and I cannot grant your request for an abatement of the resulting tax.   

The Taxpayers will received an updated bill, which will include accrued interest to date. The Taxpayers should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest.

The Taxpayers indicated that the assessment will create a financial hardship. If the assessment creates a financial hardship, the Taxpayers may pursue an offer in compromise based on doubtful collectibility. To begin that process, the Taxpayers should complete the enclosed Individual Offer in Compromise: Doubtful Collectibility form and Financial Statement for Individuals, and include the required fee or fee waiver request. The completed forms and statement will allow the Department to review and analyze the Taxpayers’ financial situation. Upon completion of that review, a response will be issued to the Taxpayers. The Taxpayers also have the option to request a payment agreement with the Department’s Collections Unit. The Collections Unit may be contacted at (804) 367-8045.

The Code of Virginia sections and public document cited are available online at www.tax.virginia.gov in the Laws, Rules & 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

AR4069.X