Tax Type
Individual Income Tax
Description
IRS corrected the Taxpayer's FAGI to include the qualified dividends.
Topic
Federal Conformity
Statute of Limitations
Date Issued
03-31-2010
March 31, 2010
Re: § 58.1-1821 Appeal: 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 2005 taxable year. I apologize for the delay in the Department's response.
FACTS
In the preparation of his federal Individual income tax return, the Taxpayer eliminated qualified dividends from federal adjusted gross income (FAGI). The Internal Revenue Service (IRS) corrected the Taxpayer's FAGI to include the qualified dividends.
Based on information provided by the IRS, the Department adjusted the Taxpayer's 2005 individual income tax to match federal adjusted gross income (FAGI), and issued an assessment. The Taxpayer contends that the exclusion of qualified dividends from FAGI was correct, and the Department assessment is erroneous.
DETERMINATION
Virginia Code § 58.1-301 provides 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. For individual income tax purposes, Virginia "conforms" to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI).
Although qualified dividends are taxed at the capital gains tax rate for federal income tax purposes, the Internal Revenue Code requires such dividends to be included in FAGI. The IRS adjusted Taxpayer's return accordingly. For Virginia purposes, there is no special tax rate for capital gains or preferential treatment for qualified dividends.
Virginia Code § 58.1-311 requires any individual to report a change or correction in federal taxable income within one year of the final determination of such change or correction by filing an amended return with the Department. If the taxpayer fails to file an amended return, Va. Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time.
In this case, the Taxpayer failed to file a Virginia amended income tax return based on the federal changes to FAGI, the starting point for the Virginia income tax calculation. As such, the Department merely adjusted the Taxpayer's return based on the federal changes as provided under Va. Code § 58.1-312 A 3.
Accordingly, the assessment is correct and is now due and payable. Payment of the remaining balance due, as shown on the enclosed schedule, should be remitted to Virginia Department of Taxation, Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23261-7203, Attention: *****. No additional interest will accrue provided the outstanding balance is paid within 30 days from the date of this
letter.
The Code of Virginia sections and regulations cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions concerning this determination, you may contact ***** at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-3145291144.C
Rulings of the Tax Commissioner