Claim of Right Repayment - Virginia State Tax

Forum|Forum|6 years ago
January 30, 2020
10 replies
132 views

In 2019, I made a repayment of 2018 wages (over $3k).

I took a credit on my 2019 federal tax return via the Claim of Right Doctrine (IRC § 1341) for the amount of taxes related to this repayment. I would like to take a similar credit on my Virginia state tax return. Does anyone know which worksheet/line I should use to apply this credit?

Best answer by MaryK4

There is not a handy way to enter in Turbo Tax, and the state of Virginia requires you to attach the computation of how the Claim of Right credit was calculated for both federal and state, so you would have to mail the return with the worksheets.

Note: The amount of tax benefit derived from the repayment must be included on the line of the Virginia return designated for Virginia income tax withheld, which is Line 26. To enter this in Turbo Tax, you would have to enter as a state estimated payment in the Federal Deductions and Credits section. See The" claim of right doctrine" is directly tied to IRC treatment

MaryK4Answer

Alumni - Intuit

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volta88Author

Level 2

Brilliant. Thank you so much!

bornintheusa1986

Level 2

In the same situation as OP.

Did you manage to figure out how to get the credit for VA state taxes?

volta88Author

Level 2

Hello!

Yes, VA Dept of Taxation finally accepted our return with the credit. We had no issues with the federal return (although it took IRS 2.5 years to process it during the pandemic).

For the federal return, we followed the steps under "Taking the credit in TurboTax CD/Download" at this link:

What is a claim of right repayment?

For the VA return, we followed MaryK's advice above (logging the credit as an Estimated Payment) and mailed in the return; however, VA initially rejected it. Long story short, it was rejected due to a combination of the following reasons: 1) the credit amount was not actually an estimated payment; 2) the schedule we submitted showing how the credit was calculated was likely not in the format they needed; and 3) IRS had not yet processed our federal return. So, they argued there was nothing to 'back up' this credit.

Ultimately, the following steps worked for us with the Virginia return:
1) Follow MaryK's advice above.
2) Attach a line-by-line spreadsheet with all amounts from the prior year VA Form 760, columns to include: Line No., Line Description, Original Amount, Refigured Amount Net of Repayment, and Difference (Original vs. Refigured Amount).
3) If possible, attach a copy of your IRS Record of Account transcript for that year, evidencing that your federal return with a similar credit was processed. Granted, this may not be available when you file due to IRS processing times.

Best of luck! Getting the Virginia situation sorted out was so stressful for us, but ultimately it was the line-by-line spreadsheet (#2) that helped us most. We even tried enlisting the help of a tax pro, but weren't able to find anyone who was familiar or willing to help with this situation.

bornintheusa1986

Level 2

Volta88,

Thank you very much for your detailed reply. I will follow the steps you outlined.

I'm glad you were finally able to get your refund. Hopefully TurboTax software can calculate and file Federal and State credits in our situation automatically in future.