Iowa Tax Research LibraryPrint Document
ELLETT, VEVA M. (TRU) (2012)
Topic Code: C012 Capital Gains Deduction Document Reference: 12201046
June 11, 2012
Veva M. Ellett (Deceased)
C/O Margaret Houseman
1724 7th St.
Perry, IA 50220
RE: Veva M. Ellett (Deceased)
Docket No. 2010-200-1-0148
Individual Income Tax Protest
Department Number 2010123700691
Dear Ms. Houseman:
The Review Unit of the Iowa Department of Revenue has considered your protest. After reviewing the facts and evidence presented and the laws which apply to your protest, the Review Unit denies your protest for the following reasons:
For the years 2006 and 2007, Veva Ellett filed her Iowa individual income tax returns claiming the Iowa capital gains deduction for the investment income she received from Wells Fargo and Edward Jones. The Department reviewed Ms. Ellettís 2006 and 2007 Iowa returns and determined that she was not entitled to claim the capital gains deduction for the capital gains she received on her investments. An assessment was issued by the Department on January 13, 2010. A protest was filed to the Departmentís assessment on March 24, 2010. Based on the factual background concerning Ms. Ellettís health, the Review Unit has determined that the protest should be reinstated.
The issue in this matter is whether the instructions in the Departmentís tax booklets for 2006 and 2007 are written in such a manner as to confuse the public and cause them to take deductions to which they are not entitled. The specific instruction in question relates to line 23 on the Iowa returns dealing with the capital gain deduction. That instruction is as follows:
LINE 23. This is a 100% deduction of qualifying net capital gains realized in 2006. Capital gains from the sales of stocks, bonds and investment property do not qualify of the capital gains deduction even if sold the lineal descendants of the owners of the property.
The instruction for line 23 in the 2006 and 2007 instruction booklet also advises taxpayers that there is additional detail on the Departmentís website regarding the capital gains deduction. The detailed instructions on the Departmentís website now specifically identify those capital gains which would qualify and not qualify for the capital gain deduction as follows:
Qualifying capital gains result from the sale of the following:
Non-Qualifying Capital Gains.
Capital gains from the sales of stocks, bonds, and investment property do not qualify for the capital gain deduction even if sold to lineal descendants of the owners of the property. Non-farm rental property may qualify. The Federal guideline applies for determining material participation for investment property. Capital gains from the sale of real property held for 10 or more years for speculation, but not used in a business, do not qualify for the deduction.
The issue in this protest was addressed in the case In the Matter of Margaret Houseman, Docket No. 09-20-1-0301 (2011). In that case, you accepted the Review Unitís determination.
Please respond in writing by July 13, 2012 whether you agree with the Review Unitís position. If you agree, or choose not to pursue the protest, then your letter will serve as authority for the Review Unit to request the Director to close the protest.
If you disagree with the Review Unitís position in this matter, then the Review Unit requests that you identify those areas of disagreement and provide documentation to support your position. Upon receipt of your letter, the Review Unit will file an Answer, which will initiate the process for an administrative hearing on your protest. A departmental attorney will be assigned to your protest at that time.
If no response is received by July 13, 2012, then the Review Unit will construe this inaction as failure to pursue the protest and will request dismissal of the protest pursuant to departmental rule 701 IAC 7.44(2).
If you have any questions regarding this matter, please do not hesitate to contact me.
Dennis Schutt, Technical Tax Specialist
Policy and Communications Division
Audit Services Section