Tax Type
Individual Income Tax
Description
Annuity death benefit payments must be in a lump sum in order to qualify for the subtraction.
Topic
Subtractions and Exclusions
Date Issued
05-09-2012
May 9, 2012
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you contest the individual income tax assessments issued to ***** (the "Taxpayers") for the taxably years ended December 31, 2008 and 2009.
FACTS
The Taxpayers are a husband and wife. The wife received a distribution of death benefit payments from a life insurance annuity (the "Annuity") during the taxable years ended December 31, 2008 and 2009. The Taxpayers subtracted the death benefit payments from their 2008 and 2009 Virginia individual income tax returns.
The Taxpayers were audited by the Department, and the subtraction for the death benefits was disallowed on the basis that the distribution was not made in a lump sum. The Department issued assessments to the Taxpayers for additional tax for the 2008 and 2009 taxable years. The Taxpayers appeal the assessments, contending that the there is no requirement that the death benefit payments from a life insurance annuity be made in a lump sum in order to claim the subtraction.
DETERMINATION
Pursuant to Va. Code § 58.1-.322 C 32, a taxpayer is allowed a subtraction of "the death benefit payments from an annuity contract that are received by a beneficiary of such contract and are subject to federal income taxation."
The Taxpayers contend that neither the death benefit subtraction provision nor the Virginia individual income tax return instructions require the annuity death benefit payments be made in a lump sum in order to claim the subtraction. In Public Document (P.D.) 09-36 (3/31/2009), the Department determined that in order to qualify for the subtraction allowed under Va. Code § 58.1-322 C 32, a death benefit payment must meet three requirements. First, the source of the payment must be an annuity contract between a customer (the Annuitant) and an insurance company. Second, the annuity payment must have been awarded to the beneficiary in a lump sum. Finally, the payment must be subject to taxation at the federal level.
Based on the information provided, the survivor annuity benefit payments in this case do not satisfy the second criterion.
During the 2012 session of the Virginia General Assembly legislation was enacted clarifying the intent of the law regarding the subtraction of annuity death benefits. Chapter 305, Acts of the Assembly, codified the Department's policy promulgated in P.D. 09-36 with regard to the requirement that annuity death benefit payments be made in a lump sum in order to qualify for the subtraction.
Based on the information provided, I find that the Department's adjustments are correct. Accordingly, the 2008 and 2009 assessments remain due and payable. Updated bills will be mailed to the Taxpayers.
The Code of Virginia sections and public documents cited and other reference documents are available on-line in the Tax Policy Library section of the Department of Taxation's web site located at www.tax.virginia.gov. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-4898706169.B
Rulings of the Tax Commissioner