What’s New for Tax Credits

The 2011 General Assembly enacted six new tax credits.  All of these credits, except the Telework Expenses tax credit, are effective for taxable year 2011. Additionally, the Motion Picture Production tax credit, which was enacted by the 2010 General Assembly, is effective for taxable year 2011.  Thus, with the exception of the Telework Expenses Tax Credit, taxpayers may apply for and, if approved, claim these new credits on their 2011 income tax returns.

 The new tax credits administered by the Virginia Department of Taxation (the Department) are as follows:

• The Barge and Rail Usage tax credit
• The Farm Wineries and Vineyards tax credit
• The International Trade Facility tax credit
• The Research and Development tax credit
• The Telework Expenses tax credit 

The other two new credits are the Port Volume Increase Tax Credit and the Motion Picture Production Tax Credit.  The Port Volume Increase tax credit is administered by the Virginia Port Authority.  The Motion Picture Production tax credit is administered by the Virginia Film Office.   

In addition to the new credits above, there are changes to existing credits:

• Livable Home
• Neighborhood Assistance Credit
• Agricultural Best Management Practices

For more information on Tax Credits, click this link. 

Long Term Capital Gain Subtraction

Effective for taxable years beginning on or after January 1, 2011, any income taxed as a long-term capital gain for federal income tax purposes, or any income taxed as investment services partnership income (otherwise known as investment partnership carried interest income) for federal tax purposes is allowed as a subtraction on the Virginia return. This subtraction is allowed if the income is attributable to an investment in a “qualified business” as defined in Va. Code § 58.1-339.4 or in any other technology business approved by the Secretary of Technology and the business has its principal office or facility in the Commonwealth and less than $3 million in annual revenues for the fiscal year preceding the investment. The investment must be made between the dates of April 1, 2010, and June 30, 2013.  

Filing Thresholds

Beginning in tax year 2010, the filing thresholds will increase as follows:

Claiming Credit for Taxes Paid to Another State

Were you required to pay income tax to a state other than Virginia for the 2011 tax year?  If so, the Virginia Department of Taxation has some reminders on claiming credit for taxes paid to another state on your 2011 Virginia income tax return.

• The credit computation is based on the qualifying taxable income and the qualifying tax liability reported to the other state.  Where no tax is paid to the other state, a taxpayer is ineligible to claim an out-of-state credit on their Virginia return.
• Taxpayers receiving full refunds of tax withheld under Virginia’s reciprocal agreements with Maryland, the District of Columbia, Kentucky, Pennsylvania or West Virginia, may not claim a credit for the amount withheld. In addition, a credit may not be claimed for taxes paid to any other state solely on the basis of a Form W-2 showing income tax withheld.
• The total allowable credit for taxes paid to another state or states is limited to the net tax liability on your Virginia return (for residents, Form 760, line 17). 
• If you are entitled to claim credit for taxes paid to more than one other state, you must provide a separate computation for each state.  In addition, you must provide a complete copy of the return for each state for which a credit is claimed.  Failure to provide required documentation may result in disallowance of the credit.
• Part-year residents filing form 760PY may not claim a credit for taxes paid to another state on income they received during their period of residence outside Virginia.
• Generally, Virginia residents may not claim a credit for taxes paid to Arizona, California, Oregon, or the District of Columbia.  Nonresidents filing Virginia Form 763 may only claim credit for taxes paid to those states.

For more details on this topic, visit the Credit for Tax Paid to Other States page of our website, or check the forms and instructions for filing Virginia returns.  Forms and instructions are located online at our Individual Tax Forms page.

Retirees – Pensions and Estimated Payments

Did you retire during the 2011 or 2012 tax years?  If so, please be advised that Virginia does tax pensions and most other retirement income.

Retirement income types taxed by Virginia may be different from other states.  For example, some states do not tax military pension income, but Virginia will.  Also, Virginia will not tax Social Security income, regardless of whether another state does.  As a general rule, taxpayers should presume any type of income included in their Federal Adjusted Gross Income is taxable unless Virginia instructions specifically state it should be subtracted from tax consideration.

Virginia applies the same tax rates to all types of income.  If you have recently retired or anticipate retiring soon, Virginia recommends you check to ensure that enough Virginia income tax is withheld from your retirement income.  If no tax is withheld on income Virginia deems taxable, you may need to make estimated tax payments to cover the tax owed.

For more information on estimating Virginia taxes and making payments of estimated tax, see our Estimated Payment Information page.  To review a more complete list of income Virginia does not tax, review the instructions on Subtractions from Income for your specific form type. Individual tax forms and instructions are available at our Individual Forms page online.

Military Spouses Residency Relief Act

The Military Spouses Residency Relief Act (S.475), which amended the Servicemember Civil Relief Act, was signed into law on Nov. 11, 2009. (You can find the Tax Bulletin that the Department published on the subject here.) It affects Virginia income tax filing requirements for spouses of military service members.  Under this law, spouses of military service members do not automatically become liable for income and personal property taxes as Virginia residents when they are present in Virginia solely because their spouse is a member of the military serving in Virginia.  To be exempt, however, the spouse must meet certain criteria.  For details, visit our website.

First quarter 2012 interest rates remain unchanged.

State and certain local interest rates are subject to change every quarter due to changes in federal rates established pursuant to IRC § 6621. Federal rates for the first quarter of 2012 will be 3% for tax underpayments (assessments) and 3% for tax overpayments (refunds) by taxpayers other than corporations.

Virginia Code§ 58.1-15 provides that underpayment rates for Virginia taxes will be 2% higher than the corresponding federal rates and overpayment rates for Virginia taxes will be 2% higher than the federal rate.  Accordingly, the

Virginia rates for the first quarter of 2012 will be 5% for tax underpayments (assessments) and 5% for tax overpayments (refunds).

Tax Bulletin 11-11, with complete information, is attached and may be found in the Tax Policy Library also.

Filing Reminders for Corporation Tax Clients

Corporation income tax returns for the taxable year ended August 31, 2011 are due to be filed by December 15, 2011.  For fastest and easiest filing, use Corporate Income Tax eFile to file your client’s return.

Remember, even though Virginia law provides for an automatic six-month filing extension, that extension does not apply to tax payments.  To avoid penalties, be sure your clients pay at least 90 percent of their tax liability by December 15, 2011. 

A reminder for your corporation tax clients whose taxable year ended February 28, 2011:  the extended filing date is coming up soon!  Return and payment for any tax due must be filed by December 15, 2011. 

For complete information on corporation income tax filing and payment requirements, see the instructions for Form 500 on our website. 

The final Corporation Estimated Income Tax Payment for calendar year 2011 filers is also due December 15, 2011.  For more information about Corporate Estimated Payments, see TAX’s Corporate Income Tax information.  

Paying an extension payment or estimated income tax using our free online Business iFile system is the fastest and most efficient way.

Correct Reporting of VK-1 Amounts Withheld

Are you a tax preparer who handles Virginia Individual Income tax filings that include information from the form VK-1?  If so, the Virginia Department of Taxation would like to clarify how to report the amount listed as withheld for the owner included on that form.

Income tax deducted from wage, salary or other payments and paid to the Department of Taxation on behalf of the recipient is referred to as income tax withheld, or withholding tax.  Typical withholding tax documents include Forms W2 or 1099.  VK-1 statements issued by a business that reflect amounts other than zero on line e. “Amount Withheld by PTE for Owner” should be treated in the same manner as W2s/1099s with regard to reporting the amounts of tax withheld.  Copies of VK-1 statement information should also be submitted with any tax return claiming VK-1 withholding.

The Department of Taxation receives many income tax returns that list VK-1 withholding as estimated tax payments, extension payments, etc.  Returns prepared this way may prompt adjustments to the returns or requests for additional documentation to correct them.  For specific line information, please consult the instructions for your form type or contact our Customer Service office for assistance.

QuickPay: A Convenient & Free Way to Pay Your Tax Bills

QuickPay is a free and secure online bill-paying service offered by the Virginia Department of Taxation. All bills issued by the agency may be paid using QuickPay with the exception of those currently under bankruptcy or appeal. 

Payments may be made by Electronic Funds Transfer (EFT) for individual or business tax bills using funds from either a checking or savings account. QuickPay also allows your clients to check their bill balance(s) and review QuickPay payment history for up to two years. 

To use QuickPay, go directly to QuickPay or visit our website.  Once at the QuickPay login, enter the five digit bill number of the bill being paid from the most recent bill statement, along with either the nine-digit SSN for an individual tax bill, or, for a business tax bill, the 15-digit Virginia account number.

State Office Closings for This Month

State offices, including the Department of Taxation, will be closed Friday, Dec. 23, and Monday, Dec. 26, in observance of the Christmas holiday.

If you need to contact the Department, please plan to do so at other times. Normal business hours and contact information can be found here.

Need More Information?

For more information on any of the topics in this message, please visit our website at http://www.tax.virginia.gov.

The Department of Taxation would like to wish all Virginia tax professionals a very happy holiday season and a wonderful 2012!

Filing Reminder for Corporation Income Tax Clients

Corporation income tax returns for the taxable year ended July 31, 2011 are due to be filed by Nov. 15, 2011.  For fastest and easiest filing, use Corporate Income Tax e-File to file your client's return.

Remember, even though Virginia law provides for an automatic six-month filing extension, that extension does not apply to tax payments. To avoid penalties, be sure your client pays at least 90 percent of the tax liability by Nov. 15, 2011.  Use our free Business iFile service to make your client's payment online.

A reminder for your clients whose corporation's taxable year ended Jan. 31, 2011: the extended filing date is coming up soon!  Return and payment for any tax due must be filed by Nov. 15, 2011.   

For complete information on corporation income tax filing and payment requirements, see the instructions for Form 500 on our website. 

Power of Attorney Process Issues F.A.Q.

Virginia established a new Power of Attorney process last year that allowed Authorized Agents to receive automatic copies of correspondence sent to the taxpayers they represent.  To address confusion on the Power of Attorney process, here is a list of Frequently Asked Questions on Power of Attorney matters and submission of R-7 and PAR 101 forms.

Q:  Why register as an Authorized Agent?

A: Anyone who wishes to be automatically copied on correspondence sent to a taxpayer must submit Form R-7 to register as an Authorized Agent with Virginia and Form PAR 101 identifying them as representative for that taxpayer. This includes all types of representatives: attorneys, friends, family members, accountants, etc.

Q: Who qualifies to register as an Authorized Agent or receive Power of Attorney authorization?

A:  Any individual can register as Authorized Agents and receive Power of Attorney authorization; businesses cannot.  The Department of Taxation will not accept a Form R-7 or any Power of Attorney documents that list a business as the authorized Power of Attorney.

Q: Will Virginia accept any alternate Power of Attorney documents?

A:  A federal Form 2848 specifying Virginia tax matters and specific years or a durable power of attorney document can be accepted only to allow discussion of related account issues. Alternate Power of Attorney documents cannot authorize the Department of Taxation to issue automatic copies of correspondence.  However, representatives authorized through alternate Power of Attorney documents can still obtain copies of taxpayer correspondence within the scope authorized by the Power of Attorney document. These representatives must submit written requests to Customer Service for the specific correspondence they wish to obtain.

Q:  Is the federal Form 8821 an acceptable Power of Attorney document?

A:  No, the federal Form 8821 is not an acceptable Virginia Power of Attorney document.  The Department of Taxation will not process these forms to record Power of Attorney authorization.

Q:  Will it be a problem if I use different information on my R-7 and PAR 101?

A:  Authorized Agents should use the exact same mailing address, name spelling, and contact information on both the R-7 and the PAR 101.  Differences in information may lead to confusion on the Authorized Agent’s identity and delays in processing PAR 101 forms.

Q:  What do I do if I need to update my Authorized Agent information?

A:  All updates to the Authorized Agent profile (mailing address, etc.) should be made on the Form R-7 with the change of information box checked.

Q:  Can I fill in the PAR 101 with my Federal CAF# instead of an Authorized Agent number?

A:  No. An Authorized Agent number (AA#) is issued to agents upon processing of their R-7.  This number is unique to VA and is not the same as the Federal CAF# or an Enrollment Card Number.

Q:  How many Authorized Agents can receive automatic copies of taxpayer correspondence?

A:  Only two (2) Agents per taxpayer may be named on the PAR 101 to receive automatic copies of correspondence.  Other agents can still be named to act on the taxpayer’s account by attaching a supplemental information list to the PAR 101 form.  These additional Agents will not receive automatic copies of correspondence, but they may obtain copies of correspondence by submitting a written request to Customer Service.

Q:  Is my Power of Attorney document valid without my signature?

A:  Without the Agent signature, authorization has not been accepted and TAX will be unable to communicate with said Agent.  Therefore, all Authorized Agents named on the PAR 101 must sign the form under the signature of representative section on line 7.  Agents on a supplemental form of the type outlined in the previous question must sign the supplemental statement.

Form R-7, Form PAR101, and their accompanying instructions are available online at the Virginia Department of Taxation’s website.

Taxpayer Bill of Rights

The Virginia Taxpayer Bill of Rights booklet outlines your rights in contacts with the Virginia Department of Taxation, and contains a wealth of other useful information, forms and instructions.

Intended as a guide to the rights provided in the Code of Virginia under the Virginia Taxpayer Bill of Rights, the publication also describes the role of the Taxpayer Rights Advocate and the agency’s collections, office audit, and field audit processes in detail, and covers the basics for offers in compromise and administrative appeals as well.  The booklet’s appendices include forms and instructions for submitting an appeal or an offer in compromise, plus forms for designating a Power of Attorney.

As you will find, the Virginia Taxpayer Bill of Rights booklet is a valuable resource for both taxpayers and tax professionals.  Be sure to bookmark or download a copy for your tax reference library!

Need More Information?

For more information on any of the topics in this message, please visit our website at http://www.tax.virginia.gov.

WASHINGTON, DC, October 25, 2011 - The Accreditation Council for Accountancy and Taxation® (ACAT) is now accepting exam applications for the November 28 - December 19, 2011 testing period from industry professionals seeking to earn any of the following four credentials:

• ABA Accredited Business Accountant/Advisor®
  
• Accredited Tax Advisor® (ATA)
  
• Accredited Tax Preparer® (ATP)
  
• Accredited Retirement Advisor® (ARA)
  

The exams are offered at computer-based testing centers throughout the United States.

The ABA is a national credential that verifies the technical proficiency of practitioners in financial accounting, financial reporting, financial statement preparation, taxation, business consulting services, business law and ethics. The emphasis is on a practical approach to public accounting.The ABA is accredited by the National Commission for Certifying Agencies (NCCA), an independent resource recognized as the authority on accreditation standards for professional certification organizations and programs.

The ATA is a premier national tax credential for practitioners who handle sophisticated tax planning issues, including planning for owners of closely held businesses, planning for the highly compensated, choosing qualified retirement plans and performing estate tax planning. Their expertise covers tax returns for individuals, business entities, fiduciaries, trusts and estates, as well as tax planning, tax consulting and ethics.

The ATP is a credential for tax practitioners who demonstrate a thorough knowledge of the existing tax code and the preparation of individual tax returns with an expertise in comprehensive 1040 issues including supporting schedules, self-employed returns, and ethics. The ATP exam will not be offered beginning in 2012, although ACAT will continue to support recertification and promotion of this credential for tax practitioners who earned it before then.

 The ARA recognizes professionals who have a thorough knowledge of topics relevant to retirement planning and special issues of senior citizens including tax planning; preparing clients for retirement; tax preparation for decedents, the essentials of estates and trusts; financial planning; and applying your knowledge and skills in real-life situations when serving aging clients.

ACAT accreditation provides evidence to clients, prospective clients, employers, and the public that the accredited professional has met national standards and has a mastery of accounting and taxation procedures and practices. These credentials demonstrate a mastery of accounting and tax procedures and practices that far exceed the proposed IRS registered tax return preparer standard.

Candidate information with topic blueprints for each exam, credential information and exam registration, is available at www.acatcredentials.org.

The National Society of Accountants (NSA) offers preparatory course study guides for some of the exams. For more information, visit www.nsacct.org or call 800-966-6679.

In Spring 2012, the exam testing dates will be June 16 - July 7, 2012. There will also be a separate window for colleges to proctor a paper exam in their schools from May 21- June 18, 2012.

For more information about the exams and ACAT credentials, visit www.acatcredentials.org or call 888-289-7763.

# # #

ACAT is an independent accrediting and monitoring organization affiliated with the National Society of Accountants. ACAT accredits professionals in independent practice who have demonstrated measurable knowledge of the principles, practices, and ethical standards of accounting, taxation, information technology and related financial services. For more information, visit www.acatcredentials.org.

The Department of Taxation receives numerous tax returns containing an enclosed "proof of receipt" letter and postage-paid envelope, asking that we return the letter as proof of receipt.  Unfortunately, we do not have the staff to handle this additional work.  If you would like your shipment tracked, we recommend that you use courier services, or mail methods that specialize in mail tracking.  The Department of Taxation is not in the position to acknowledge receipt of packages or shipments outside of standard mail services designed to accomplish this.

Richmond, VA - Governor Bob McDonnell today authorized Virginia Tax Commissioner Craig M. Burns to provide a one week filing and payment extension to certain individuals and businesses affected by Hurricane Irene. The extension will apply to taxpayers located in the Commonwealth who are unable to meet their filing obligations because the financial records they need to file their taxes, or their tax preparer, are located in cities and counties within the Commonwealth dealing with Hurricane Irene recovery or are otherwise unavailable because of severe hurricane damage.