August 18, 2020
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you request correction of the individual income tax assessment issued to ***** (the “Taxpayers”) for the taxable year ended December 31, 2016.
FACTS
The Taxpayers, a husband and wife, filed their 2016 Virginia income tax return claiming deductions for contributions made to two Virginia 529 college savings accounts. Under review, the Department denied the deductions because the Taxpayers had not provided substantive evidence that they made contributions to the accounts. The Taxpayers filed an appeal, contending that the submitted documentation shows that they could claim the deduction.
DETERMINATION
Virginia Code § 58.1-322.03 7 a allows a deduction to the purchaser or contributor for the amount paid or contributed during the taxable year for a prepaid tuition contract or savings trust account entered into with the Virginia College Savings Plan. Generally, the amount deducted on any individual income tax return in any taxable year is limited to $4,000 per prepaid tuition contract or savings trust account. To the extent the purchase price or the amount paid during the year exceeds $4,000 per contract or account, the remainder may be carried forward and deducted in future taxable years.
Pursuant to Virginia Code § 58.1-322.03 7 b, a purchaser of a prepaid tuition contract or savings trust account who has attained age 70 is allowed to deduct the full amount paid for the contract or account, less any amounts previously deducted.
The Taxpayers contend that the wife, who was under age 70 in 2016, made a $20,000 contribution to a Virginia 529 account in 2014 that allowed her to deduct the maximum $4,000 in 2016. They assert that the husband, who turned 70 in 2016, was able to deduct the entire amount of his contributions to two separate Virginia 529 accounts in 2016. The Department determined that the documentation provided by the Taxpayers was insufficient to support their contributions.
The Taxpayers provided documentation with their appeal that shows the wife made cash contributions to one prepaid college tuition contract in 2014 in an amount in excess of the $4,000 limitation. The Department’s records establish that the Taxpayers claimed the maximum $4,000 deduction for the wife’s 529 contribution on their 2014 and 2015 Virginia income tax returns. The evidence also shows that the husband made contributions to two separate prepaid college tuition contracts in 2016. Because the Taxpayers have provided documentation supporting their contributions to 529 Virginia savings accounts, the deductions will be allowed and the 2016 assessment will be abated.
The Code of Virginia sections and public document 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/3301.B