June 30, 2025
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 assessments issued to ***** (the “Taxpayers”) for the taxable years ended December 31, 2020, through 2022.
FACTS
The Taxpayers filed Virginia resident income tax returns for the taxable years at issue, claiming cash and noncash charitable contributions as itemized deductions reportable on federal Schedules A. Under audit, the Department requested documentation to support the deductions. The Taxpayers submitted some documentation, but the auditor determined that it was insufficient to support the claimed deductions for noncash contributions and a portion of the cash contributions claimed for the 2022 taxable year. The Department, accordingly, disallowed the unsubstantiated deductions and issued assessments.
The Taxpayers submitted an application for correction, contending they provided sufficient documentation. Alternatively, the Taxpayers assert that the Department should allow a reduced deduction of $5,000 for donations they valued at more than $5,000 but did not obtain the required qualified appraisal. The Taxpayers do not contest the cash contribution adjustment.
DETERMINATION
Conformity
Virginia Code § 58.1-301 provides, with certain exceptions, 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. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia. For individual income tax purposes, Virginia conforms to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income properly 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 Chapter 3 of Title 58.1 of the Code of Virginia.
Generally, the Department relies on the accuracy of information and computations reflected on the federal income tax return when reviewing Virginia individual income tax returns. If the information provided on the federal return appears reasonable, then, typically, the Department does not look behind those computations. The Department, however, may examine and adjust the FAGI and itemized deductions where there is clear evidence that the amounts reported on the federal or Virginia income tax return are inconsistent with the IRC. See Virginia Code § 58.1-219 and § 58.1-310.
Itemized Deductions
Virginia Code § 58.1-322.03 1 allows taxpayers to deduct from their Virginia adjusted gross income certain amounts allowed for itemized deductions for federal income tax purposes. These deductions include those for real estate taxes, home mortgage interest, personal property taxes, medical expenses, and charitable contributions provided they are claimed in accordance with the IRC and its related regulations.
The Department requested that the Taxpayers provide documentation supporting the charitable contribution deductions claimed on their Schedules A for the 2020 through 2022 taxable years. The request indicated the specific documentation required to substantiate the deductions. Deductions for charitable contributions are allowable only when they can be substantiated through items such as receipts or cancelled checks. See Public Document (P.D.) 19-78 (7/29/2019) and P.D. 23-24 (3/1/2023). Any contribution over $250 must also have a contemporaneous written acknowledgment from the donee indicating whether any goods or services were provided by the donee in connection with the contribution, and if so, what the value of those goods or services were. See Treas. Reg. § 1.170A-13(f)(2).
Under IRS regulations, the substantiation requirements for gifts of property other than money vary depending on the amount of the deduction claimed. The regulations set up three tiers of deductions, for amounts up to and including $500, greater than $500 but less than $5,000, and greater than $5,000, and require greater substantiation for each tier. See Treas. Reg. § 1.170A-13. For purposes of determining the applicable threshold values, property and all similar items of property donated to one or more donees during the year are treated as one property. See IRC § 170(f)(11)(F). See also Kunkel v. Comm’r, T.C. Memo 2015-71, and Bass v. Comm’r, T.C. Memo 2023-41.
“Similar items of property” is defined as “property of the same generic category or type, such as clothing, jewelry, furniture, electronic equipment, household appliances, or kitchenware.” See Treas. Reg. § 1.170A-13(c)(7)(iii). For example, if a taxpayer made three separate donations of furniture valued at $2,000 each, the rules applicable to donations greater than $5,000 would apply because the total value of furniture donated during the year exceeded $5,000. In this case, using the information provided by the Taxpayer during the audit and additional information the Taxpayers provided on appeal, the audit staff separated the Taxpayers’ contributions into categories for clothing, household appliances, furniture, electronics, outdoor furniture and equipment, books, housewares, art, luggage, and exercise equipment.
In addition, if a taxpayer fails to meet the substantiation requirement for a particular threshold, no deduction is allowed. The deduction is not reduced to a lower threshold for which the taxpayer may have sufficient documentation. See, e.g., Mohamed v. Comm’r, T.C. Memo 2012-152. For example, if the taxpayer in the previous example did not have an appraisal to support the furniture deduction, the entire deduction would be disallowed. It would not be reduced to the lower tier threshold of $5,000 or $500, even if the taxpayer was able to meet the substantiation requirements of the lower deduction tiers.
Gifts of Property Valued at $500 and Under
Under Treas. Reg. § 1.170A-13(b)(1), for items valued below $500, a taxpayer need only have a receipt from the donee containing the name and address of the donee, the date and place of the contribution, and a reasonably detailed description of the property donated.
For the 2021 taxable year, the Taxpayers’ luggage donation required this level of substantiation. The Taxpayers provided a sufficiently detailed receipt and the Department will allow the deduction for luggage donated in 2021.
Gifts of Property Valued Over $500
Treas. Reg. § 1.170A-13(b)(3) provides that in addition to the receipt required by Treas. Reg. § 1.170A-13(b)(1), the donation of noncash property with a value between $500 and $5,000 necessitates a written record of the manner and approximate date of acquisition and the cost basis. In addition, taxpayers must complete and attach one or more federal Forms 8283, Noncash Charitable Contributions, to their federal income tax return for each taxable year in which they make a noncash charitable contribution in excess of $500.
For each of the taxable years at issue, the Taxpayers’ exercise equipment and artwork donations required this level of substantiation. In addition, the Taxpayers’ lawn equipment donations in 2020 and 2021 as well as children’s toy donations in 2021 required this level of substantiation. The Taxpayers submitted federal Forms 8283 for each of the taxable years at issue. The donations of lawn equipment were documented on the 2020 and 2022 Forms 8283. In addition, the Taxpayers provided a receipt from the charitable organization for lawn equipment donated in 2020 but not for the 2022 donation. As such, the Department will allow a deduction for the lawn equipment donated in 2020 but not for the 2022 donation. The deductions for the remaining donations in this category were properly denied because they were not documented on the Forms 8283.
Gifts of Property Valued Over $5,000
Under Treas. Reg. § 1.170A-13(c)(2), if a taxpayer claims a deduction for property valued in excess of $5,000, the taxpayer generally must obtain a qualified appraisal and attach an appraisal summary to their return.
In each of the 2020, 2021, and 2022 taxable years, the Taxpayers contributed furniture, clothing, housewares, and books valued over $5,000. However, the Taxpayers did not submit any qualified appraisals or appraisal summaries with their returns. Accordingly, the deductions claimed for contributions of these items of property were properly denied.
CONCLUSION
Taxpayers must maintain records sufficient to allow the IRS to determine their correct tax liability. See Treas. Reg. § 1.6001-1(a). Similarly, Virginia Code § 58.1-310 provides:
Whenever in the opinion of the Department it is necessary to examine the federal income returns or any copy thereof of any individual, estate, trust, partnership, or corporation in order properly to audit such returns, the Department or the commissioner shall have the right to require such taxpayer to provide such return or a copy thereof and all statements, inventories, and schedules in support thereof.
Under the provisions of Virginia Code § 58.1-205, 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 that the assessment was erroneous. In this case, with the exception of certain deductions claimed in 2020 and 2021, the Taxpayers did not provide sufficient substantiation to support the deductions claimed for noncash charitable contributions. In addition, the Taxpayers’ alternative request for reduced deductions cannot be granted because deductions that are not substantiated based on the requirements of the applicable threshold are denied in full, not reduced to the threshold for which there was adequate substantiation.
The assessments for the 2020 and 2021 taxable years will be adjusted to allow the substantiated deductions in accordance with the attached schedule. There is no basis, however, to adjust the Department’s assessments for the 2022 taxable year. The Taxpayers will receive updated bills that will include accrued interest to date. The Taxpayers should remit the balances due within 30 days of the bill dates to avoid the accrual of additional interest and possible collection actions.
The Code of Virginia sections cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this decision, you may contact ***** in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4897.Q