Tax Type
Individual Income Tax
Description
Deferred compensation plan; Pre-taxed contributions mistakenly included in taxable income
Topic
Subtractions and Exclusions
Taxable Income
Date Issued
04-14-1994
April 14, 1994
Re: §58.1-1821 Application: Individual income taxes
Dear*******
This will reply to your letter of February 1, 1994, in which you have applied for the correction of an assessment of additional individual income taxes to *********(the "Taxpayers") for the 1991 taxable year. I apologize for the delay in responding.
FACTS
The Taxpayers participated in an employer sponsored deferred compensation plan, and contributed fixed amounts of salary to the plan on a pre-tax basis. Although the pre-tax contributions were not reported to the Taxpayers as taxable Virginia wages on their W-2 forms, the Taxpayers mistakenly included the contributions in their Virginia taxable income from 1979 through 1988. In 1989, the Taxpayers realized their mistake, and began reporting the proper amount of taxable wages on their 1989 Virginia returns. However, no amended returns were filed to correct tax years prior to 1989.
In 1991, the Taxpayers received a distribution from the plan, which was properly included in their 1991 federal taxable income. The Taxpayers excluded part of this income from their 1991 Virginia taxable income in an effort to recover amounts previously included in error. This subtraction was disallowed by the department, and additional taxes were assessed. You ask that the Taxpayer's subtraction be allowed.
DETERMINATION
Va. Code §58.1-322 provides that the determination of Virginia taxable income begins with federal adjusted gross income, adjusted by the modifications provided therein. There is no subtraction or adjustment provided for the type of income the Taxpayers have attempted to exclude. Absent a specific statutory subtraction or deduction, I have no option but to uphold the 1991 assessment which is based on the Taxpayers' federal adjusted gross income.
The Taxpayers should have filed amended Virginia returns upon discovery of the error in 1989. The statute of limitations for filing amended returns claiming refunds for the pre-1989 tax years is now barred by the three-year statute of limitations set forth in Va. Code §58.1-1823. There is nothing in the Code of Virginia that authorizes the Tax Commissioner to issue a refund of taxes beyond the statutory period of Va. Code §58.1-1823.
Because of the limitations imposed on the Tax Commissioner by the Code of Virginia, I have no option but to deny your application. However, given the extenuating circumstance surrounding the Taxpayers situation, I will waive interest associated with the 1991 assessment provided the tax due,***** is paid within 60 days of the date of this letter. The check should be made payable to Department of Taxation, c/o*******Office of Tax Policy, Department of Taxation, P. O. Box 1880, Richmond Virginia 23282. Please be sure that the Taxpayer puts his social security number and references invoice number*******on the check.
Alternatively, the Taxpayers may enter into an installment payment plan, and pay the balance due with interest over an extended period. If this option is selected, the Taxpayer should contact ******at *********** to arrange for acceptable terms.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7650M
Rulings of the Tax Commissioner