Guest Post: Virginia TAX to Participate in Levy Program

Recently, the Virginia Department of Taxation (TAX) announced that they will participate with the Internal Revenue Service (IRS) in an automated levy program to offset potential refunds. This will implement the offset program that allows the Commonwealth to notify the IRS of any amounts due and have the taxpayer’s refund from the IRS offset by any amounts due to TAX.

What is new is that this program will now be working in the other direction, too. TAX will offset any state refund by amounts that may be owed to the IRS.

All practitioners and taxpayers should pay attention to the fact that local amounts owing are now included in this program. Thus any client taxpayer who owes a locality for BPOL, property taxes, or any other assessment may find their refunds from TAX and the IRS offset to satisfy the local obligation.

See below for the action taken by the 2009 Virginia legislature which seems to be the enabling legislation permitting these offsets.

Setoff Debt Collection Act
House Bill 1830 (Chapter 786) and Senate Bill 1292 (Chapter 571) would allow local governments to collect delinquent local tax bills through setoff of the debtor’s federal income tax refund provided that Congress enacts legislation that allows local governments to collect delinquent local tax bills using offsets from such refunds. The acts incorporate this authority into the existing debt setoff program managed by TAX. The acts also establish classifications to be used to determine the priority when there are multiple claims to refunds. The priority classifications will be as follows:

• Claims by TAX;
• Claims filed by the Department of Social Services, Division of Child Support Enforcement;
• Claims filed by any court or administrative unit of state government;
• Claims filed by any county, city or town;
• Claims filed by the Internal Revenue Service.

Claims within the same classification will be determined by the order in which the claimant agency filed a written notice of its intent to effect collection through setoff with TAX. Claims filed by any county, city or town for an offset of a federal income tax refund would be limited to claims for delinquent local taxes.
Effective: Contingent upon enactment of authorizing legislation by Congress.Amended: §§ 58.1-520 and 58.1-530.

Any client caught by these offsets will need to know the appropriate agency to contact, if they have no understanding as to why the offset occurred. If the IRS offsets an amount due to the state, you MUST call the state and not the IRS. If a state refund is offset by an amount due to the IRS, then you MUST call the IRS at (800) 829-7650 or (800) 829-3903. If there has been a previous notice by the IRS of intent to levy, then NO notice will be sent to the taxpayer regarding the offset.

Hopefully this will provide some understanding of the programs regarding refund offsets as we begin filing returns.

What’s the Big Deal About Tax Conformity?

Virginia has employed retroactive fixed date tax conformity for many years now. While not the ideal model due to a part-time legislature that meets from January to March, it has worked out okay for the past few years at least with conformity legislation being among the first few bills to be passed and signed into law.

Recognizing the challenges of the current system, VSCPA members and staff worked closely with Sen. Walter Stosch, CPA, also a member, and the Virginia Department of Taxation (TAX) to develop an alternate approach for introduction in the 2010 General Assembly session. The result was SB 179, prefiled by Sen. Stosch and introduced on the first day of session, January 13, 2010. SB 179 advanced the fixed date of conformity by two years, through December 31, 2010, thus making it a prospective rather than retroactive date as has been done historically. Additionally, threshold exemptions were added to protect Virginia’s revenue against too much uncertainty. With TAX on board with this approach, we headed optimistically into session with high hopes that legislators would recognize the advantages of this model and the benefits it would provide to taxpayers and tax preparers.

Also prefiled and introduced on the first day of session were the traditional conformity bills, HB 614 and its Senate companion SB 545. These identical bills advanced the fixed date of conformity through December 31, 2009, in addition to adding three new exceptions to conformity. I attended the very first House Finance Committee meeting of the session, during which the Committee started to discuss the conformity bill. I naively expected that it would sail through as it had in previous years, so was dismayed when the bill was tabled for the day after the manufacturing community raised objections to the Section 199 deconformity introduced as a new exception. These objections continued to cause the bill to be passed by day after day, week after week.

In the meantime, we were working with Sen. Stosch to attempt to combine the two Senate conformity bills into one by rolling SB 545 into our bill, SB 179. It quickly became apparent that this was not going to happen, so we ultimately agreed to have our bill continued to 2011 and shifted our focus to getting the traditional conformity bills.

So what’s the big hold-up on the other two bills? The budget. From day one of the 2010 session, the budget has been at the heart of almost every discussion. Bills that have a negative impact on Virginia’s budget are dying left and right. Bills with a positive or no impact on the budget are proceeding unless they encounter opposition.

For tax conformity, the three new exceptions represent approximately $160 million dollars in tax revenues in the next biennium. According to TAX, deconforming with Section 199 makes up $30 million of that amount. However, unlike the other new exceptions, deconforming with Section 199 represents a shift in policy. Generally speaking, new exceptions to tax conformity result from changes to the tax code that occur in the calendar year preceding session. No new federal legislation passed in 2009 affecting Section 199. The proposed deconformity resulted from a planned increase in the deduction amount from 6% to 9% that was in the original legislation as it was passed when put into effect around 2004. As a result, this particular exception is being viewed by many as a tax increase. Also, this particular provision would have no impact on the 2009 tax filing season because it has an effective date of January 1, 2010.

Amendments were introduced in both the House and Senate Finance Committee just last week to strike the Section 199 exception from the bills. Both bills passed out of their respective finance committees. The Senate version then went to the Senate floor, where it ultimately passed unanimously. The House version was referred to House Appropriations after being passed in House Finance in order to address the $30 million shortfall created by amendment, and there it still sits. This essentially makes the House bill dead since crossover has now officially begun and the House can only take action on Senate bills from this point forward. Bottom line, the tax conformity bill (SB 545) is now being viewed by legislators as a revenue bill rather than a tax bill.

Where do we go from here? The VSCPA has been actively and aggressively lobbying on this issue since the beginning of session. Attendees at CPA Day at the General Assembly discussed it in their meetings with legislators. VSCPA President & CEO Stephanie R. Peters, CAE, and I, as well as the VSCPA’s legislative counsel, have been meeting with key legislators on the Finance and Appropriations committees to push for action. A Call to Action was sent to all VSCPA members with an interest in taxation to ask them to contact their legislators on this issue. The VSCPA has no position on whether or not the bill should be amended to remove the Section 199 provision. It simply believes the bill should pass expeditiously.

It’s not too late to get involved. Everything rests in the hands of the House Appropriations Committee at this point, but it will ultimately go to the House floor for a vote. Contact your delegate and encourage him or her to pass SB 545, with or without the amendment as soon as possible.

Leaders’ Institute Nominations Due March 19

What is The VSCPA Leaders' Institute? It's a three-day, all-expenses-paid leadership program developed by founding sponsor Baker Tilly (formerly Beers + Cutler) and the VSCPA Educational Foundation. The Institute seeks to bridge the gap between “student” and “young professional” and develop future leaders of the CPA profession.

In its fourth year, the Institute has grown exponentially and has helped hundreds of Virginia accounting students develop important professional and leadership skills and network with representatives from top Virginia CPA firms.

This year’s event is June 25–27, and I’m already looking forward to it. We’re currently nailing down the agenda, and we have a ton of great speakers and topics confirmed.

Plus, we’re preparing ourselves here at the VSCPA for a flood of nominations, which are due March 19, 2010. Learn more about the nominations process here to find out how you can nominate a top student for this prestigious program.

Also, check out photos from last year’s event to catch a glimpse of what goes on at The Leaders’ Institute.

2010 Session Watch Page Is Live

Morning everyone! Just a quick note that we've launched the 2010 Session Watch page on www.vscpa.com. Click here for updates on legislation that could impact Virginia CPAs.

Also, check out the most recent Session Watch update for details on various bills the VSCPA has taken action on.

As always, feel free to contact me if you have questions.