Could a retired physician claim Virginia's Neighborhood Assistance credit for donated clinic services when the clinic lacked DSS approval for 2005?

Subject

Neighborhood Assistance Act Tax Credit

Plain-English summary

Virginia denied the portion of a 2005 Neighborhood Assistance Act Tax Credit tied to a retired physician's free clinic services because the clinic was not approved by the Department of Social Services to allocate credits that year.

The physician donated health-care services to a clinic serving low-income, uninsured county residents. Those services appeared capable of qualifying, but only if the clinic or county had received DSS approval for the 2005 allocation.

Neighborhood organizations had to apply annually, with the regulation requiring an application by May 1. DSS records showed no 2005 approval for this clinic, and the county confirmed it was too late to obtain certification. The Tax Department therefore could not allow the uncertified credit.

The account still required further adjustment. The Department had failed to deny a carryforward from 2004, and the taxpayers appeared to have overpaid the assessment. Staff would review the records and issue either a bill or refund as appropriate; the ruling did not state the final amount.

What this means for you

• Verify that the clinic or neighborhood organization has approval for the specific credit year before donating services in reliance on the credit.
• A qualifying service does not overcome missing program certification.
• Annual organizational deadlines can affect a donor's later individual return.
• Track carryforwards and payments separately because correcting one credit issue may reveal other adjustments.

Common questions

Were the physician's services themselves disqualified? The ruling says they appeared to qualify if the clinic or county had the required approval.

Why was the credit denied? DSS had not approved the clinic to allocate credits for 2005.

Did the taxpayers definitely owe the assessment? The Department ordered further review and said a bill or refund would follow as appropriate.

Citations and references

• Va. Code § 63.2-2004(C) and § 63.2-2002.
• 22 VAC 40-41-20.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-160

Original ruling text

October 17, 2007

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you seek correction of the individual income tax assessment issued to * (the "Taxpayers") for the taxable year ended December 31, 2005.

FACTS

The Taxpayers, a husband and wife, claimed a Neighborhood Assistance Act Tax Credit (the "Credit") on their 2005 individual income tax return. The Department denied a portion of the Taxpayers' Credit that was not certified by the Department of Social Services (DSS) and issued an assessment.

The Taxpayers contest the assessment on the basis that the husband, a retired physician, provided health care services without charge at the * (the "Clinic"), a partnership of health professionals, physicians, hospitals and *** (the "County") to provide primary health services to low income, uninsured County residents. The Taxpayers believe the Department has unfairly denied the Credit because the County failed to properly obtain approval for the Credit from DSS.

DETERMINATION

The Neighborhood Assistance Act provides tax credits for eligible taxpayers that contribute to approved neighborhood organizations designed to benefit impoverished individuals. Under Va. Code § 63.2-2004 C, physicians are eligible for the Credit if they donate time to perform health care services at a clinic operated by an organization that has received approval to allocate Credits from DSS.

In this case, the husband has provided a letter issued by the County confirming his donation of time to provide health care services to patients of the Clinic. These services appear to qualify for the Credit provided that the Clinic or the County was approved by DSS to allocate Credits for 2005.

Pursuant to Va. Code § 63.2-2002, neighborhood organizations must submit an annual application to DSS requesting an allocation of Credits for use by eligible taxpayers under regulations adopted by the State Board of Social Services. Under these regulations, an application must be submitted by May 1 of each year. See Title 22 of the Virginia Administrative Code (VAC) 40-41-20.

Records provided to the Department by DSS indicate that the Clinic was not approved for the allocation of Credits for the 2005 taxable year. The County confirmed to the Taxpayers that it was too late for the Clinic to receive certification from DSS. Without certification from DSS, the Department cannot permit the Taxpayers to claim the Credit for services donated to the Clinic. While I appreciate the Taxpayers' situation, the Department correctly denied the portion of the Credit not approved by DSS.

The Department failed to deny a credit carryforward from the 2004 taxable year. In addition, it appears that the Taxpayers overpaid the assessment. As such, the Taxpayer's 2005 income tax return will be adjusted based on this determination and a further review of the Taxpayers' records. A member of the Department's staff will contact the Taxpayers to fully explain any additional adjustments. A bill or refund, as appropriate, will be issued.

If you have any questions regarding this response, you may contact * in the Department's Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1222271468o