Tax Type
Individual Income Tax
Description
Underpayment of Estimated Tax
Topic
Returns/Payments/Records
Date Issued
04-14-1992
April 14, 1992
Re: §58.1-1821 Application: Individual Income Tax
Dear****************
This will reply to your letter of March 7, 1991 in which you (the "Taxpayers") protest an assessment of an addition to the tax for the underpayment of estimated taxes for taxable years 1988 and 1989.
FACTS
Upon filing their 1988 income tax return, the Taxpayers were assessed an addition to tax for underpayment of estimated taxes throughout the year. Prior to the end of the 1988 return filing season, the Taxpayers submitted an amended 1988 income tax return which indicated an overpayment of tax by recomputing taxable income. The amended 1988 return claimed a subtraction for the amount of the federal pension income received by one of the Taxpayers, based upon the U.S. Supreme Court decision of Davis v. Michigan. The Taxpayers' amended return has been held as a protective claim for refund by the Department of Taxation pending the final outcome of litigation regarding the applicability of refunds based on Davis for taxable years 1985 - 1988.
The taxpayers used the revised 1988 tax liability amount (based upon the Davis decision) to substantiate meeting Exception 1 to the addition to tax for taxable year 1989.
The Taxpayers contest the assessments, which have been paid through the seizure of the Taxpayers' 1990 overpayment.
DETERMINATION
The department's position that 1988 returns should be filed in accordance with the law in effect for taxable year 1988 was communicated to the public through the press immediately after the Supreme Court's decision. As the issue is still in litigation, the department must continue to enforce the law as it existed prior to the Davis decision. Accordingly, the subtraction claimed for federal retirement benefits was properly disallowed by the department.
Since the tax liability for taxable year 1988 was erroneously computed by the Taxpayers, I find the Taxpayers were correctly assessed an addition to tax for underpayment of estimated taxes for taxable years 1988 and 1989. As such, I do not find basis for either the waiver of the assessments issued in this case, or the issuance of the refund indicated by the Taxpayers' second return filed for 1988.
It should be noted, however, that in the event an appeal ultimately results in a refund order by the courts, the General Assembly enacted legislation during its 1989 special session to extend the statute of limitations for the filing of amended 1985 - 1988 income tax returns. Under this legislation, federal retirees will have one year from the final court decision on the refund issue in which to file refund claims with the Department of Taxation.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5077E
Rulings of the Tax Commissioner