July 19, 2017
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which ***** (the “Taxpayers”) request a refund of individual income tax paid for the taxable year ended December 31, 2012. I apologize for the delay in responding to your request.
FACTS
The Taxpayers, a husband and wife, filed a Virginia resident individual income tax return for the 2012 taxable year claiming a credit for income tax paid on retirement income earned by the husband in ***** (Country A). Under audit, the Department disallowed the credit because the Taxpayers could not show that the husband's income was retirement income. The Taxpayers paid the assessment and filed an appeal, contending that they could claim the credit because the husband's income was pension income earned from prior work for a Country A employer.
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 FAGI. Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322.
Virginia Code § 58.1-332.1 provides a credit for income tax paid on any pension or retirement income to a foreign country to the extent that such income is included in federal adjusted gross income, derived from past employment in the foreign country and subject to Virginia income tax. The intent of the credit is to grant Virginia residents relief in situations in which they are taxed by both Virginia and a foreign country on these types of income during the same taxable year.
The Taxpayers contend that Country A withheld the equivalent of federal, state and Social Security taxes from the husband's monthly pension checks he received from his employer located in Country A. The Department requested a tax return from Country A or other documentation to show that the income from which tax was withheld was retirement income.
The Taxpayers are unable to provide a copy of an income tax return because Country A does not have a filing requirement. The Taxpayers did provide spreadsheets showing the breakdown of tax withheld for an annuity for each monthly paycheck of the taxable year. They also provided a paycheck summary from the husband's employer for January 2012 that shows income tax being withheld from his paycheck.
Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws of Virginia, an “assessment of a tax by the Department shall be deemed prima facie correct.” As such, the burden of proof is on the Taxpayers to show they were entitled to claim the credit.
The January paycheck summary from the husband's employer reports income tax withheld from the husband's income. The spreadsheets appear to have been made by the Taxpayers and show income tax was withheld from an annuity. While the documentation shows that tax was withheld from income by a Country A employer, it does not show that the income was retirement income. Accordingly, the Taxpayers' request for a refund of income tax paid to Virginia for the 2012 taxable year is denied.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1308.B