Tax Type
Individual Income Tax
Description
Disability income received by surviving spouse does not qualifies for the subtraction
Topic
Assessment
Subtractions and Exclusions
Taxable Income
Date Issued
07-28-2010
July 28, 2010
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This is in response to your letter in which you seek correction of the individual income tax assessment issued to ***** (the "Taxpayers") by the Department for the taxable years ended December 31, 2006 and 2007. I apologize for the delay in this response.
FACTS
The Taxpayers, a husband and wife, filed a joint individual income tax return for the taxable years at issue. They claimed a subtraction for disability income received by the husband as the surviving spouse of an individual previously receiving qualifying disability income payments. The husband was remarried during the taxable years at issue.
Under review, the Department disallowed the subtraction because the husband was not permanently and totally disabled, and assessments were issued. The Taxpayers appeal the assessments, contending that disability income received by the husband qualifies for the subtraction.
DETERMINATION
Under certain conditions, Va. Code § 58.1-322 C 4 b provides an individual income tax subtraction for up to $20,000 of disability income as defined under Internal Revenue Code (IRC) § 22(c)(2)(B)(iii). "Disability income" is defined under this section
of the IRC to be:
[t]he aggregate amount includable in the gross income of the individual for the taxable year under section 72 or 105(a) to the extent such amount constitutes wages (or payments in lieu of wages) for the period during which the individual is absent from work on account of permanent and total disability.
Based on the statutory requirements, an individual must meet two tests in order to be allowed a subtraction for disability income.
- 1. The individual must receive disability income, and
2. The individual must be absent from work because of a permanent and total disability.
By reason of their character as legislative grants, statutes relating to deductions and subtractions allowable in computing income and credits against a tax liability must be strictly construed against the taxpayer and in favor of the taxing authority. See Howell's, Motor Freight, Inc., et al. v. Virginia Department of Taxation, Circuit Court of the City of Roanoke, Law No. 82-0846 (10/27/1983).
In this case, the husband's former spouse became permanently and totally disabled and began receiving disability income payments. She elected an option to receive reduced disability income payments so that the payments would continue to the husband in the event of her death. After the she passed away in 2004, the husband began receiving distributions as the surviving annuitant continuing to report them as disability income under IRC § 72(m)(7). The Taxpayers claimed a subtraction for this disability income on their 2006 and 2007 Virginia individual income tax returns.
Under IRC § 22(e)(3), "permanent and total disability" means:
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- [a]n individual is permanently and totally disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
While the husband did receive income reported as disability income during the taxable years at issue, he was not permanently and totally disabled. Therefore, the income did not qualify for the subtraction under Va. Code § 58.1-322 D 4 b.
Accordingly, the auditor's adjustment is upheld and the assessment remains due and payable. A schedule is enclosed showing the current outstanding balance. No additional interest will accrue provided the total outstanding balance is paid within 30 days from the date of this letter. Payment should be sent to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Post Office Box, 27203, Richmond, Virginia 23218-7203, Attention: *****.
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 ***** at *****.
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- Sincerely,
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- Linda Foster
Deputy Tax Commissioner
- Linda Foster
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AR/1-3440658323.E
Rulings of the Tax Commissioner