Tax Type
Individual Income Tax
Description
Information was insufficient to show separately accounted for itemized deductions.
Topic
Filing Status
Records/Returns/Payments
Date Issued
12-06-2011
December 6, 2011
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 Taxpayer") for the taxable year ended December 31, 2007. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer, a resident of Virginia, is married to a nonresident individual who works and resides in ***** (State A). For the 2007 taxable year, the couple filed a joint federal income tax return and separate state income tax returns. The Taxpayer filed a Virginia income tax return, and his spouse filed a State A income tax return. The spouse had no income from Virginia sources.
Under audit, the Department adjusted the Taxpayer's itemized deductions and exemptions to reflect his percentage of the couple's joint income and issued an assessment for additional tax and interest. The Taxpayer appeals the assessment, contending he separately accounted for the itemized deductions.
DETERMINATION
In cases where a Virginia resident and nonresident spouse file separate state income tax returns, Virginia Code § 58.1-326 grants the Department authority to modify the allocation of exemptions and deductions claimed for federal income tax purposes under Va. Code § .58.1-324. Title 23 of the Virginia Administrative Code (VAC) 10-110-190 B provides that each spouse must account separately for items of income, deductions, and exemptions. However, when such items cannot be accounted for separately, deductions and personal exemptions must be proportionally allocated between each spouse based upon the income attributable to each. See also Public Document (P.D.) 95-251 (9/29/1995).
In P.D. 11-170 (9/29/2011), the Tax Commissioner ruled that the apportionment computation for a resident taxpayer is based on his or her federal adjusted gross income (FAGI). Pursuant to Va. Code § 58.1-322, Virginia starts with the FAGI, requires certain additions, and permits certain deductions and subtractions in computing Virginia taxable income. Accordingly, the Department considers it rational to apportion deductions and exemptions between a husband and wife under Va. Code § 58.1-326 based on FAGI.
The Taxpayer claimed all of the itemized deductions on his Virginia income tax return, except the spouse's state income tax paid. He asserts his wife maintained a separate residence in State A and he paid all of the expenses of maintaining the home in Virginia. The Taxpayer has provided copies of joint bank statements into which only his payroll check was deposited and from which the mortgage payments and real estate taxes were paid for the Virginia home. The Taxpayer asserts that this evidence shows that the expenses for the Virginia home were paid solely by him.
In addition to the deposits of the Taxpayer's payroll checks, nine transfers were made into this joint checking account from another bank account. No information has been provided to show whether or not this account was held jointly by the Taxpayer and the spouse. The Taxpayer must show that the funds transferred into the account during the taxable year were not commingled with funds of the spouse. Accordingly, the Department finds information provided its insufficient to show that the Taxpayer separately accounted for his itemized deductions.
I will, however, allow the Taxpayer a final opportunity to provide documentation that supports his contention of separate accounting. Please send the documentation within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23261-7203, Attn: *****. If the requested information is not provided within the allotted time, the assessment will be returned to the auditor to be adjusted according to the provisions of this letter.
The Code of Virginia sections, regulation and public documents cited are 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 about this determination, you may contact ***** at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
Craig M. Burns
Tax Commissioner
AR/1-4654642774.D
Rulings of the Tax Commissioner