Did bank statements prove a Virginia resident separately paid the mortgage deductions claimed apart from a nonresident spouse?

Plain-English summary

Virginia upheld proportional allocation of itemized deductions because the resident spouse's bank statements did not trace the mortgage payments to her separate income. The summaries omitted the sources of deposits and transfers and did not prove those funds were the sole source of payment.

Putting funds in an account bearing one spouse's name did not establish separate accounting under the regulation.

Citations and references

• Va. Code §§ 58.1-326 and 58.1-324
• 23 VAC 10-110-190 B
• P.D. 95-251

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-129

Original ruling text

June 27, 2018

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 “Taxpayer”) for the taxable year ended December 31, 2008. I apologize for the delay in the Department's response.

FACTS

The Taxpayer, a resident of Virginia, was married to a nonresident of Virginia. The couple filed a joint federal income tax return, and the Taxpayer filed a separate Virginia income tax return. The spouse did not file a Virginia return because he had no income from Virginia sources.

Under audit, the Department adjusted the Taxpayer's itemized deductions on her Virginia return to reflect her percentage of the couple's joint income. The adjustment resulted in an increased tax liability, and the Department issued an assessment. The Taxpayer appeals the assessment, contending that she provided evidence of separate accounting of her mortgage payments.

DETERMINATION

Virginia Code § 58.1-326 states, “if husband or wife is a resident and the other is a nonresident, separate taxes shall be determined on their separate Virginia taxable incomes on such single or separate forms as may be required by the Department, unless both elect to determine their joint Virginia taxable income as if both were residents.” [Emphasis added]

In cases where a Virginia resident and nonresident spouse file separate state income tax returns, Virginia Code § 58.1-326 grants the Department authority to modify the allocation of exemptions and deductions claimed for federal income tax purposes under Virginia Code § 58.1-324. Title 23 of the Virginia Administrative Code (VAC) 10-110-190 B provides that each spouse must account separately for items of income, deductions, and exemptions. However, when such items cannot be accounted for separately, deductions must be proportionally allocated between each spouse based upon the income attributable to each. See also Public Document (P.D.) 95-251 (9/29/1995).

The Taxpayer contends that her bank statements show a separate accounting of the mortgage payments. The bank statements, however, show only a summary of the account's activity such as beginning balance, dividend payments, deposits, transfers, and ending balance for each month. The statements fail to show the source of the funds resulting in the deposits or transfers, or whether the funds transferred to the checking account were the sole source of funds used to pay the mortgage. Merely placing funds in a bank account in one spouse's name is not sufficient to show separate accounting. Accordingly, the assessment is upheld.

An updated bill reflecting the current amount due will be issued. The outstanding balance should be paid within 30 days of the bill date to avoid the accrual of additional interest.

The Code of Virginia sections, regulation, 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/518.C