Document Number
94-283
Tax Type
Declaration of Estimated Income Tax by Individuals
Individual Income Tax
Description
Adjustment to estimated tax for out-of-state tax credit
Topic
Credits
Payment and Refund
Date Issued
09-20-1994
September 20, 1994



Re: §58.1-1821 Application: Individual Income Tax

Dear**********

This will reply to your request concerning the 1992 Virginia individual income tax assessment received from utilizing an out-of-state credit in Exception 4 when computing the Addition to Tax for Underpayment of Estimated Tax for*************(the "Taxpayers").

FACTS


The Taxpayers, who are Virginia residents, filed a Virginia 1992 individual income tax return, which included income derived from a partnership located in another state. A credit was claimed on the Virginia return for taxes paid to the other state on the partnership income. Exception 4-Tax on 1992 Income Over a 4, 5 and 8 Month Period was utilized when computing the addition to the tax for underpayment of estimated tax on Form 760C. In computing this exception, the Taxpayer reduced the tax liability by the out-of-state tax credit. The credit was disallowed for purposes of computing this exception and an assessment was issued for the addition to the tax. The Taxpayers contend that because the nonrefundable credits are considered when determining the estimated payments, the credits should also be used in determining the tax liability when using Exception 4; therefore, they request that the assessment be abated.

DETERMINATION


Va. Code §58.1-490(B) provides that for purposes of filing estimated income taxes for individuals:
    • ["e]stimated tax" means that amount which an individual estimates to be his income tax under this chapter for the taxable year, less the amount which he estimates to be the sum of any credits allowable against the tax. (Emphasis added.)
Therefore, when making a declaration of estimated taxes, a taxpayer may reduce the amount of estimated tax payments by the amount of nonrefundable credits which they anticipate receiving.

Va. Code §58.1-492(C)(2), which pertains to Exception 4, provides that the addition to the tax shall not be imposed with respect to an underpaid estimated tax installment where the total amount of all payments of estimated tax made on or before the last date prescribed for the payment of such installment equals or exceeds:
    • An amount equal to ninety percent of the tax computed, at the rates applicable to the taxable year, on the basis of the actual taxable income for the months in the taxable year ending before the month in which the installment is required to be paid. (Emphasis added.)
The Code or regulations do not prohibit the reduction of the tax by nonrefundable credits when computing Exception 4, and such reduction would be consistent with the method used to compute the estimated amounts. Further, the Virginia corporation underpayment of estimated tax forms, as well as the Federal individual and corporation underpayment forms, reduce the tax for such credits. Therefore, when computing Exception 4, tax may be reduced by nonrefundable credits in determining the amount on which the ninety percent is to be applied. In addition, when computing Exception 3-Tax on Annualized Income, the tax may be reduced by nonrefundable credits when determining the amount on which to apply the proper percentages.

As a result of this clarification of department policy, I find basis for abatement of the Taxpayer's assessment of addition to tax. A revised notice of assessment, in light of this determination, will be issued under a separate cover. Please contact the department if you need other assistance.

Sincerely,



Danny M. Payne
Tax Commissioner


OTP/7704N

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46