Present: Carrico, C.J., Compton, Lacy, Hassell, Keenan, and
Koontz, JJ., and Whiting, Senior Justice

COMMONWEALTH OF VIRGINIA,
DEPARTMENT OF TAXATION
                    OPINION BY JUSTICE LEROY R. HASSELL, SR.
v.   Record No. 961270                     February 28, 1997

BRADFUTE W. DAVENPORT, JR., ET AL.

       FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
                  Randall G. Johnson, Judge


     In this appeal, we consider whether Code § 58.1-322

requires taxpayers, who included the unearned income of

their minor children in the taxpayers' federal adjusted

gross income, to include the children's unearned income in

the taxpayers' Virginia adjusted gross income.
     Bradfute W. Davenport, Jr., and Suzanne S. Davenport

(the taxpayers) have five minor children who periodically

have received cash gifts from their grandparents.   The

grandparents made the gifts to Bradfute W. Davenport, Jr.,

as custodian for each child as permitted by the Virginia

Uniform Transfers to Minors Act, Code §§ 31-37, et seq.      The

taxpayers have no ownership interest in, or use of, the

gifts or any investment income thereon.

     The taxpayers filed joint income tax returns with the

federal government and the Commonwealth of Virginia for the

years 1992 through 1994.   In each of these taxable years,

the taxpayers' children had income subject to federal

taxation.   As permitted by 26 U.S.C. § 1(g)(7), the

taxpayers elected to include their minor children's unearned

income in the taxpayers' federal adjusted gross income for
federal income tax purposes rather than file a separate tax

return for each child.   When the taxpayers submitted their

Virginia income tax returns for the years 1992 and 1993, the

taxpayers subtracted the unearned income of their minor

children from their federal adjusted gross income to

determine the quantum of the taxpayers' Virginia adjusted

gross income.

     The Commonwealth of Virginia Department of Taxation

issued a notice of assessment to the taxpayers for their

1992 Virginia income tax return.   The Department asserted

that the taxpayers should not have subtracted the children's

unearned income from the taxpayers' federal adjusted gross

income, and the Department assessed tax and interest on the

income which was not reported.
     The taxpayers paid the additional tax assessment under

protest and filed an application for correction of erroneous

or improper assessments of state income taxes in the circuit

court, seeking a determination that they were entitled to

subtract their children's unearned income from the

taxpayers' federal adjusted gross income.   The trial court

agreed with the taxpayers, and we awarded the Department an

appeal.

     Code § 58.1-301 provides that "[a]ny term used in this

chapter [which governs Virginia's income tax] shall have the

same meaning as when used in a comparable context in the




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laws of the United States relating to federal income taxes,

unless a different meaning is clearly required."   Code

§ 58.1-322 states in relevant part:   "A.   The Virginia

taxable income of a resident individual means his federal

adjusted gross income for the taxable year . . . with the

modifications specified in this section."

     The taxpayers argue that they are entitled to deduct

their children's unearned income from the taxpayers' federal

adjusted gross income because, they say, the word "his"

found in Code § 58.1-322(A) refers to the taxpayers' income

and does not include their children's unearned income, which

was less than $5,000 and would otherwise not be subject to

state income taxation.   The Department argues that in

determining a taxpayers' Virginia income tax liability, Code

§ 58.1-322(A) requires that the taxpayers include all income

included in the taxpayers' federal adjusted gross income

subject only to those modifications contained in § 58.1-322.

     We agree with the Department.    The plain language in

Code §§ 58.1-301 and -322 clearly and unambiguously requires

the taxpayers to report their federal adjusted gross income

as taxable income on their Virginia tax returns.   Code

§ 58.1-322, which also prescribes numerous modifications to

a resident individual's federal adjusted gross income,

contains no provision which authorizes the taxpayers to

subtract their children's unearned income.   The taxpayers



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elected to include their children's unearned income in the

taxpayers' federal adjusted gross income for federal

taxation purposes, and, having made such election, the

taxpayers may not change that election in computing their

state income tax.   Moreover, we are of opinion that the

phrase "his federal adjusted gross income" contained in Code

§ 58.1-322 does not refer to only one taxpayer's income, but

refers to the amount of federal adjusted gross income that

the taxpayers specified on their federal income tax return,

subject to any modification authorized by Virginia statutes.
     Accordingly, we will reverse the judgment of the trial

court and enter final judgment here in favor of the

Commonwealth.

                                   Reversed and final judgment.




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