Was an IRA distribution received before a taxpayer became a Virginia resident included in her Virginia part-year resident income?

Plain-English summary

Virginia excluded one IRA distribution from a part-year resident's Virginia taxable income because she received it in May 2013, before becoming a Virginia resident in June.

The taxpayer had initially failed to prove that any taxable distributions fell outside her Virginia residency period. On reconsideration, she supplied additional records. The Department reconciled those records with her IRA statements, Form 1099-R, and federal return and identified the single pre-residency distribution.

Virginia adjusted the assessment to include only IRA amounts received after the move. Because the taxpayer had already paid the assessment in full, the Department would issue any refund produced by the adjustment.

Common questions

Are all distributions received during a move year taxed by Virginia? No. A part-year resident is taxed as a resident only for the portion of the year she resides in Virginia.

Why did the Department change its earlier result? The taxpayer supplied new documentation that established the timing of one distribution.

Were post-move distributions excluded too? No. The ruling directed Virginia to include the amounts received after residency began.

Citations and references

• Va. Code §§ 58.1-301, 58.1-303, and 58.1-322
• P.D. 14-67 (May 20, 2014)
• P.D. 16-210 (December 8, 2016)

Subject

Taxpayer received one taxable IRA distribution before establishing Virginia residency.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-65

Original ruling text

May 10, 2017

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 (P.D.) 16-210 (12/8/2016) to * (the ”Taxpayer”) for the taxable year ended December 31, 2013.

FACTS

In P.D. 16-210, the Department determined that the Taxpayer failed to prove that any of her taxable Individual Retirement Account (IRA) distributions were not subject to Virginia income tax for the 2013 taxable year. The Taxpayer seeks reconsideration of that determination, contending that certain taxable distributions were not subject to Virginia income tax because they were received while she was a part-year resident of * (State A).

DETERMINATION

Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia conforms to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322.

Virginia Code § 58.1-303 provides that a person who becomes a resident of Virginia is subject to taxation during the period in which he or she is a Virginia resident and is taxed as a resident only for the portion of the year that he or she resides in Virginia. Accordingly, Virginia taxable income is computed by determining income, deductions, subtractions, additions and modifications attributable to the period of residence in Virginia. In addition, a part-year resident may claim a portion of his Virginia personal exemptions, but the exemptions will be prorated based upon the number of days that the taxpayer was a Virginia resident. Further, a part-year resident may claim a prorated Virginia standard deduction if he claims the standard deduction for federal income tax purposes. See P.D. 14-67 (5/20/2014).

The Taxpayer was a State A resident prior to becoming a resident of Virginia in June 2013. As a part of her reconsideration request, the Taxpayer submitted additional documentation to show that she received some taxable IRA distributions prior to June 2013. Only the amount of distributions she received prior to June 2013 that were included in her FAGI would not have been subject to Virginia income tax. After reconciling the new documentation with all of the Taxpayer's IRA statements, the appropriate tax information return (Form 1099-R) and the Taxpayer's federal income tax return, the Department concludes that the Taxpayer received one taxable IRA distribution in May 2013, before she established Virginia residency. Therefore, such distribution was not subject to Virginia income tax.

Because the Department's assessment included all of the IRA income, the assessment will be adjusted to include only amounts the Taxpayer received after moving to Virginia. Because the Taxpayer previously paid the assessment in full, a refund will be issued as warranted. Enclosed is a schedule indicating which of the Taxpayer's taxable IRA distributions were attributable to each residency period.

The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1121.M