Tax Type
Individual Income Tax
Description
Interest on amended return
Topic
Penalties and Interest
Date Issued
02-18-1994
February 18, 1994
Re: §58.1-1821 Application: Individual Income Tax
Dear*******
This will reply to your letters of May 12, 1993 and December 18, 1993 in which you protest the assessment of interest on an amended 1989 individual income tax return.
FACTS
The Taxpayer sold his Virginia residence in May 1989 and purchased a replacement residence in another state in November 1989 with a basis less than the basis of his Virginia residence. The Taxpayer had to amend his federal return to retroactively claim the gain on the sale of the Virginia residence.
In October 1992, the Taxpayer amended his 1989 Virginia Nonresident Return to report a taxable gain on the sale of the residence which did not meet the IRS two-year deferral for a replacement residence. The Taxpayer remitted the additional tax due and was subsequently billed for interest. While you paid the interest, you now protest it as a penalty.
DETERMINATION
Internal Revenue Code (IRC) §1034(a) allows the gain on the sale of a residence to be deferred if a replacement residence of equal or greater value is purchased within two years of the original sale. If the cost of the new residence is less than the selling price of the old, gain is recognized to the extent of the difference. Since Virginia generally conforms to the terms of the Internal Revenue Code, the gain on the sale was recognized for Virginia tax purposes as well.
While the Taxpayer paid the appropriate tax to the department, you did not remit any interest thereon. Treas. Reg. §301.6601-1(a)(1) provides that "[i]nterest...shall be paid on any unpaid amount of tax from the last date prescribed for payment of the tax (determined without regard to any extension of payment) to the date on which payment is received. Likewise, Virginia law requires the payment of interest on the additional tax due. Specifically, Va. Code §58.1-351 requires that interest shall accrue and be payable upon any tax or unpaid balance of tax, from the date the tax or any unpaid balance of the tax was originally due until paid.
Accordingly, since the interest was appropriately assessed, I find no basis for refunding such to the Taxpayer.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6993H
Rulings of the Tax Commissioner