Tax Type
Individual Income Tax
Description
Federal retirement benefits; Subtractions from Federal Adjusted Gross Income
Topic
Subtractions and Exclusions
Taxable Income
Date Issued
04-14-1992
April 14, 1992
Re: §58.1-1821 Application: Individual Income Tax
Dear****************
This will reply to your letter in which You (the "Taxpayers") protest an assessment of individual income tax for taxable years 1988 and 1989.
FACTS
Subsequent to the opinion of the U.S. Supreme Court in Davis v. Michigan, the Taxpayers filed their 1988 Virginia individual income tax return claiming a subtraction from federal adjusted gross income for federal retirement benefits. The Taxpayers' return was reviewed by the Department of Taxation and the subtraction was disallowed, resulting in an assessment of additional tax for that year.
The department later retained the Taxpayers' 1989 overpayment and applied a portion to the 1989 760C liability and the remaining balance to the outstanding 1988 assessment. The Taxpayers had used the erroneously reported 1988 tax liability amount to substantiate meeting Exception 1 to the addition to tax for taxable year 1989.
The Taxpayers contest these assessments.
DETERMINATION
The department's position that taxable year 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 on the Taxpayer's 1988 return 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 the waiver of the assessments issued in this case.
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/482OE
Rulings of the Tax Commissioner