Tax Type
Individual Income Tax
Description
Taxpayers contest adjustment, contending that IRC § 179 election is only applicable for federal purposes.
Topic
Federal Conformity
Date Issued
10-17-2008
October 17, 2008
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 "Taxpayers") for the taxable year ended December 31, 2004.
FACTS
The Taxpayers, a husband and wife, filed a joint Virginia income tax return and itemized their deductions for the taxable year at issue. The husband put an automobile into service for his business in September 2003 and elected to expense the cost in the first year pursuant to Internal Revenue Code (IRC) § 179. In 2004, the Taxpayers reported no depreciation expense on the husband's business automobile in calculating their itemized deductions, but reported the depreciation for purposes of calculating itemized deductions on their Virginia return.
The Taxpayers' 2004 Virginia return was audited and the itemized deductions were adjusted to reflect the itemized deductions reported on their federal return. The Taxpayers contest the adjustment, contending that IRC § 179 election is only applicable for federal purposes.
DETERMINATION
Virginia Code § 58.1-301 provides that, "Any reference in this chapter to the laws of the United States relating to federal income taxes shall mean the provisions of the Internal Revenue Code of 1954, and amendments thereto, and other provisions of the laws of the United States relating to federal income taxes . . . ." Currently, Virginia conforms to the Internal Revenue Code as it existed on December 31, 2007. There are only two exceptions to this conformity. The first exception is for the special depreciation allowance for certain property provided for under IRC § 168(k). The second exception is for the carryback of certain net operating losses for five years under IRC § 172(b)(1)(H).
Conformity under Va. Code § 58.1-301 has always included the provisions of IRC § 179 in the definition of federal adjusted gross income and federal taxable income. In accordance with Virginia law, the cost of an automobile should have been included in determining the Taxpayers' employee business expenses reported as itemized deductions for the 2003 taxable year. Therefore, the depreciation deduction reported on the 2004 taxable year cannot be allowed. The same would be true for any depreciation deductions for the same automobile reported on subsequent returns.
Based on the foregoing, the Department properly adjusted the Taxpayers' itemized deductions on their 2004 Virginia individual income tax return. Accordingly, the assessment at issue is correct and remains dine and payable. The Taxpayer will receive an updated bill with accrued interest. The bill should be paid within 30 days of the bill date to avoid the accrual of additional interest.
The Code of Virginia section cited is available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
- Sincerely,
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Janie E. Bowen
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- Tax Commissioner
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AR/1-2409266699.B
Rulings of the Tax Commissioner