Did Virginia's recomputation of a taxpayer's retirement-income subtraction produce relief for the paid 2010 assessment?

Subject

Recomputed retirement subtraction reduced the paid assessment

Plain-English summary

Virginia's recomputation reduced the paid 2010 assessment and produced a refund with interest. An earlier determination had rejected the taxpayer's own pension-subtraction calculation and requested more information. The taxpayer asked the Department to calculate the subtraction from the records already submitted.

The Department applied its pro-rata method: the annual distribution was multiplied by a ratio based on previously taxed contributions compared with the year-end account value plus the annual distribution. Only contributions verified from the taxpayer's W-2 forms were used.

The enclosed calculation covered 2007-2014, but incomplete information meant it did not account for taxable contributions that might have been distributed before the taxpayer moved to Virginia.

Result: Virginia adjusted the paid 2010 assessment and directed a refund with accrued interest. It also told the taxpayer to review the 2012-2014 returns and amend them as appropriate. The earlier P.D. 15-139 remained the final determination for 2010.

What this means for you

• Preserve W-2 forms, contribution records, year-end account values, and distribution histories.
• Virginia's method allocates each distribution proportionally rather than assuming a specific contribution came out first.
• Missing pre-Virginia distribution history can limit the subtraction calculation.
• A recomputation for one year may require review of later returns.

Common questions

Q: What amount was allowed?

A: The public ruling redacts the amount.

Q: Did the taxpayer's own calculation control?

A: No. The Department used its stated pro-rata method and only the available verified contribution information.

Q: Was the 2010 determination reopened completely?

A: No. P.D. 15-139 remained the final determination, but the recomputed subtraction reduced the assessment and generated a refund.

Citations and references

• P.D. 15-139 and P.D. 10-214, as cited in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-224

Original ruling text

December 8, 2015

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek reconsideration of the Department's determination letter issued as Public Document 15-139 (6/30/2015) to * (the "Taxpayer") for the taxable year ended December 31, 2010.

In Public Document (P. D.) 15-139 the Department determined that the Taxpayer's calculation for the pretax pension contribution did not meet the guidelines provided in P.D. 10-214 (9/15/2010). In addition, the Department asked the Taxpayer to provide additional information in order for the subtraction to be more accurately computed.

The Taxpayer has responded that information he received from the Department was incomplete, and he had presented all his personal records relative to his appeal. The Taxpayer requests the Department compute the subtraction based on the information provided in the appeal.

As stated in P.D. 15-139, the portion of the annual distribution(s) eligible for the subtraction would be determined by multiplying the total amount of the annual distribution for the 2010 taxable year by a ratio equal to the total balance of previously taxed contributions divided by the sum of the value of the retirement account at the end of the taxable year plus the total amount of the annual distribution. Based on the evidence, only pretax contributions verified from the Taxpayer's W-2s (*) can be used to compute the subtraction limitation.

The enclosed spreadsheet shows the computation for the allowable subtraction for the 2007 through 2014 taxable years and is based on the information available. Due to the lack of information, the Department did not take into consideration taxable contributions that may have been distributed prior to the Taxpayer's move to Virginia as would be required under P.D. 10-214.

The 2010 assessment will be adjusted to reflect an allowable retirement subtraction in the amount of *. Because the bill has been paid, a refund with accrued interest will be issued.

In addition, the Taxpayer should review subsequent returns to properly reflect the pension subtraction as computed in the enclosed spreadsheet and file amended returns for 2012 through 2014 as appropriate.

While I understand the Taxpayer's continuing disagreement with the Department's position, P.D. 15-139 represents the Department's final determination with regard to the 2010 tax assessment. The Code of Virginia sections, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions regarding this response, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-6090178043.D