Tax Type
Individual Income Tax
Description
Taxpayers' subtraction for disability income disallowed
Topic
Subtractions and Exclusions
Taxable Income
Date Issued
03-03-2011
March 3, 2011
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter seeking reconsideration of the Department's determination letter, issued as Public Document (P.D.) 10-153 (7/28/2010), to ***** (the "Taxpayers").
FACTS
In P.D. 10-153, the Department determined that the Taxpayers, a husband and wife, were not entitled to the disability income subtraction for the taxable years at issue because the husband, who received the income, was not permanently and totally disabled.
The Taxpayers request a redetermination, contending the payments qualified as disability income under Internal Revenue Code (IRC) § 22(c)(2)(B)(iii), and neither the Code of Virginia nor the IRC re-characterize this type of income once the permanently disabled person dies and subsequent payments are made to the spouse.
DETERMINATION
Virginia Code § 58.1-322 C 4 b provides an individual income tax subtraction for up to $20,000 of disability income as defined under IRC § 22(c)(2)(B)(iii). In P.D. 10-153, the Department found that an individual must meet two tests in order to be allowed a subtraction for disability income on the Virginia individual income tax return.
- The individual must receive disability income, and The individual must be absent from work because of a permanent and total disability.
While the Department does not dispute the characterization of the income under the IRC, the deduction under Virginia Code § 58.1-322 C 4 b can only be claimed by an individual who is permanently or totally disabled. Because neither the husband nor his current wife is the individual for whom the disability income was approved, the Taxpayers are not eligible to claim the Virginia subtraction.
While I recognize your continuing disagreement with the validity of the assessment, P.D. 10-153 clearly explains the Department's authority for disallowing the Taxpayers' subtraction for disability income and constitutes the Department's final determination on this issue.
Accordingly, the assessment is upheld and 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 and public document 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 web site. If you have any questions regarding this determination, you may contact ***** at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-4555455795.E
Rulings of the Tax Commissioner