Tax Type
Individual Income Tax
Description
Department's authority for disallowing subtraction for foreign dividends
Topic
Subtractions and Exclusions
Taxable Income
Date Issued
04-08-2010
April 8, 2010
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter seeking reconsideration of the Department's determination letter dated April 27, 2009, issued as Public Document: (P.D.) 09-50, to ***** (the "Taxpayers").
FACTS
In P.D. 09-50, the Department determined that the Taxpayers were not entitled to a foreign source income subtraction for the 2007 taxable year because the General Assembly had repealed the subtraction effective for taxable years beginning on and after January 1, 2003. The Taxpayers now assert that the Department is required under fixed date conformity with federal statutes to allow their subtraction on the Virginia income tax return. The Taxpayer also claims that the Department has not consistently applied the policy stated in P.D. 09-50.
The Taxpayers continue to assert that the fixed date conformity provisions of the Code of Virginia provide for the subtraction of certain foreign source dividends from federal adjusted gross income (FAGI). They claim that because the foreign source dividends were included in FAGI and reported as income on Form 1116 for the purpose of calculating a federal foreign tax credit, conformity with the federal treatment of the foreign dividends requires Virginia to allow the subtraction.
DETERMINATION
As stated in P.D. 09-50, Va. Code § 58.1-322 did provide a subtraction from FAGI for certain foreign source income until the General Assembly specifically repealed the subtraction effective for taxable years beginning on and after January 1, 2003. As such, because the foreign dividends were included in the Taxpayers' FAGI and the Code of Virginia did not permit a subtraction for such income, the Department was correct in disallowing the subtraction on the 2007 income tax return. This policy has been consistently articulated in P.D. 03-54 (5/3/2003), P.D. 07-1 (2/22/2007), and P.D. 8-103 (6/18/2008).
The Taxpayers, however, indicate that they filed their 2006 Virginia income tax return with the same foreign source subtraction without a correcting adjustment by the Department. They claim a letter, dated August 23, 2008, from the Department concerning the 2006 return supports their position. This letter, which did explain a tax credit adjustment made to the 2006 return, did not address subtractions. The Department, however, subsequently issued letters, dated September 26, 2008, notifying the Taxpayers that the subtraction was disallowed. The letters, copies enclosed, disallowed the foreign source income subtraction and showed the additional adjustment made to the 2006 return.
I have carefully reconsidered the Taxpayer's appeal, but must respectfully disagree with your conclusions. While I recognize your continuing disagreement with the validity of the assessment, my letter of April 27, 2009, clearly explains the Department's authority for disallowing the Taxpayers' subtraction for foreign dividends. This letter constitutes the Department's final determination on this issue.
The Code of Virginia sections cited, along with other reference documents, are available on-line 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 Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
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- Tax Commissioner
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- Janie E. Bowen
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AR/1-3438036947.E
Rulings of the Tax Commissioner