05-87 | Virginia Tax

Tax Type

Individual Income Tax

Description

Credit or offset under Treas. Reg. § 1.6050E-1(b)(4)

Topic

Records/Returns/Payments

Date Issued

06-09-2005

June 9, 2005

Re: Request for Ruling: Individual Income tax

Dear ******************:

This will respond to your letter concerning the Form 1099-G issued to ***** (the "Taxpayers") for the taxable year ended December 31, 2000. I apologize for the delay in the Department's response.

FACTS

The Taxpayers' Virginia individual income tax return for the 2000 taxable year reflected an overpayment. The Taxpayers requested that the overpayment be credited to estimated income tax for the 2001 taxable year. The Department issued an information return, Form 1099-G, to the Taxpayers for the amount of the 2000 overpayment.

The Taxpayers did not report the 2000 overpayment as income on their 2001 federal income tax return. The Internal Revenue Service ("IRS") adjusted their 2001 federal income tax return and issued an assessment. The Taxpayers believe the Department incorrectly classified the overpayment and no Form 1099-G should have been issued. The Taxpayers contest the issuance of Form 1099-G for the 2000 taxable year and also request that the Department correct the information returns issued for the 2001 and 2002 taxable year overpayments.

RULING

Virginia Code § 58.1-1821

Virginia Code § 58.1-1821 provides, in pertinent part, that any person assessed with any tax administered by the Department may apply for relief to the Tax Commissioner within ninety days of an assessment. In the Taxpayers' case, the Department issued information returns with respect to the 2000, 2001 and 2002 taxable years. While the Taxpayers believe the information returns are incorrect, the Department has not issued an assessment to the Taxpayers. Therefore, there is no basis for an administrative appeal pursuant to Va. Code § 58.1-1821. Your letter is being treated as a request for a ruling.

Form 1099-G

Internal Revenue Code § 6050E requires each state paying refunds or allowing credits totaling $10 or more to an individual in any calendar year to file information returns with the IRS. Such reporting is made using Form 1099-G or an acceptable substitute.

Under Treasury Regulation ("Treas. Reg.") § 1.6050E-1(b)(4), the term "credit or offset" means an overpayment of tax, which, in lieu of being refunded to the taxpayer, is:

- (i) Applied against an existing liability of the taxpayer
  (ii) Available for application against a future liability of the taxpayer, or
  (iii) Otherwise used or available for use for the taxpayer's benefit.

In this case, the Taxpayers elected to have the overpayment from their 2000 income tax return credited toward their 2001 estimated income tax. This action fits the definition of a credit or offset under Treas. Reg. § 1.6050E-1(b)(4) because the 2000 overpayment was made available for application against future liability of the Taxpayers. Accordingly, the Department was required to issue the Form 1099-G for the 2000 taxable year.

The same analysis applies to the overpayments for the 2001 and 2002 taxable years. Essentially, the Taxpayers were entitled to receive refunds of Virginia income tax for the years at issue. Instead of receiving the refund and making an estimated payment toward the next year's tax, the Taxpayers elected to have the refund directly credited toward the next year's estimated tax. By making this choice, the Taxpayers constructively received the refunds for the 2000 through 2002 taxable years. As such, the Department correctly issued a Form 1099-G for each of the taxable years at issue.

Because this is a matter of federal law, any further steps in appealing this matter must be pursued through the IRS. Should you wish to appeal the IRS determination with respect to your 2001 federal income tax return, information on appeal rights is located on the IRS web site. See "Tax Information for Appeals," located at www.irs.gov/individuals.

- The Code of Virginia section cited, along with other reference documents, 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 ruling, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/52568E

Rulings of the Tax Commissioner