Tax Type
Individual Income Tax
Description
Virginia Prepaid Education Program
Topic
Persons Subject to Tax
Date Issued
07-25-2005
July 25, 2005
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 "Taxpayer") for the taxable year ended December 31, 2001. I note that the assessment has been paid in full.
FACTS
In April 2001, the Taxpayer, who was over age 70, contributed payments to two separate Virginia Prepaid Education Program ("VPEP") contracts, owned by his daughter-in-law, to benefit his grandchildren's education. The Taxpayer deducted these contributions on his 2001 Virginia income tax return.
The Department disallowed the deduction on the basis that the Taxpayer was not the owner of the two VPEP contracts. As a result, the Department assessed the Taxpayer with additional Virginia income tax and interest. The Taxpayer appeals the Department's adjustment based on "misunderstanding of the application of the law.
DETERMINATION
Virginia Code § 58.1-322 D 7 creates an individual income tax deduction for the purchaser of a Virginia prepaid tuition contract with the Virginia College Savings Plan. Subdivision c of Va. Code § 58.1-322 D 7 provides that a purchaser of a prepaid tuition contract who has attained age 70 is allowed to deduct the full amount paid for the contract, less any amounts previously deducted.
For purposes of the deduction in Va. Code § 58.1-322 D 7 for a prepaid tuition contract, only a purchaser of the contract can claim the deduction even if someone else is makings the payments. See Public Document ("P.D.") 00-216 (12/7/00).
For purposes of the VPEP, Va. Code § 23-38.75 defines purchaser as "a person who makes or is obligated to make advance payments in accordance with a prepaid tuition contract and who is listed as the owner of the prepaid tuition contract." [Emphasis added.] Pursuant to the Disclosure Statement issued by the VPEP, only one purchaser is allowed per contract.
The documentation provided indicates the Taxpayer's daughter-in-law is listed as the owner of the contracts at issue. As such, the Taxpayer's daughter-in-law, not the Taxpayer, is entitled to claim the deduction for the Taxpayer's payments towards the VPEP contracts that benefited his grandchildren. While I understand the Taxpayer's situation, the law clearly states that he is not entitled to the deduction for contributions to the prepaid tuition contracts because he is not the owner of the contracts.
CONCLUSION
Based on the foregoing, the assessment issued to the Taxpayer for the taxable year ended December 31, 2001 is correct. Accordingly, the Taxpayer's request for a refund of Virginia income tax and interest paid for the 2001 taxable year is denied.
The Code of Virginia sections and public document cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/55392B
COMMONWEALTH ®f VIRGINIA
Department of Taxation
TO WHOM IT MAY CONCERN:
Under the authority of §§ 58.1-1 and 58.1-110 of the Code of Virginia, I hereby delegate to Gerald Gwaltney, Deputy Tax Commissioner, the authority to sign for me, in my absence, any and all documents, including, but not limited to, affidavits, warrants, rulings, appeals, offers in compromise and sales tax revocations.
This authority shall not extend to matters or documents related to my service on any statutorily created board or commission, including, but not limited to, the Compensation Board and Treasury Board.
This authority shall become effective January 10, 2003, and shall remain in effect until revoked.
Done at Richmond, Virginia, this 13th day of January 2003.
Kenneth W. Thorson
Tax Commissioner
Acknowledgement: Gerald H. Gwaltney Date:
Done this 13th day of January 2003 in the City of Richmond, State of Virginia. My Commission expires 9-30-2003.
Sylvia J. Wesson
Notary Public Notary Seal
Rulings of the Tax Commissioner