Would Virginia accept delinquent resident income tax returns after federal records verified the reported income for 2001 through 2003?

Subject

Verified federal information allowed delinquent Virginia returns to be accepted

Plain-English summary

Virginia accepted the taxpayers' 2001-2003 returns as filed after federal records verified them. The Department had learned from the IRS that the Virginia residents received taxable income and appeared not to have filed federal returns. It asked them to file Virginia returns or explain the income.

The taxpayers then filed Virginia returns, but initially supplied too little documentation for the Department to verify the reported income and deductions. Virginia issued statutory assessments from the information available.

During the appeal, the Department confirmed that federal returns had in fact been filed and that the IRS return information was consistent with the Virginia returns. The Department therefore accepted the Virginia returns and directed adjustments to the statutory assessments. Any later IRS changes affecting federal taxable income still had to be reported to Virginia.

What this means for you

• Virginia resident returns generally begin with federal adjusted gross income, so federal records are central to verification.
• Filing a delinquent return may not by itself remove a statutory assessment if supporting information is missing.
• Consistent IRS transcripts or return information can substantiate the federal starting point used on a Virginia return.
• Taxpayers must report later federal changes that affect Virginia income.

Common questions

Why were assessments issued after the Virginia returns were filed?

The Department initially could not verify the income and deductions because sufficient documentation was not provided.

What changed during the appeal?

Virginia verified that federal returns had been filed and found that the IRS information matched the Virginia returns.

Were the original assessments simply canceled?

The ruling directed that they be adjusted according to the Virginia returns accepted as filed.

Citations and references

• Va. Code §§ 58.1-301, 58.1-341, 58.1-321, 58.1-219, and 58.1-311.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-151

Original ruling text

October 8, 2009

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the Virginia individual income tax assessments issued to * (the "Taxpayers") for the taxable years ended December 31, 2001 through 2003. I apologize for the delay in responding to your letter.

FACTS

The Taxpayers are Virginia residents. The Department obtained information from the internal Revenue Service (I.R.S.) indicating that the Taxpayers received taxable income for the 2001 through 2003 taxable years and further, that the Taxpayers had failed to file federal individual income tax returns. The Department requested that the Taxpayers file the Virginia returns or provide an explanation concerning the taxable status of that income.

In response, the Taxpayers filed Virginia returns. The Department was, however, unable to verify their accuracy. Assessments were issued in absence of sufficient documentation to support the income and deductions reported. The Taxpayers appeal the assessments contending that they are arbitrary and beyond the authority of the Department.

DETERMINATION

Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (I.R.C.) unless a different meaning is clearly required. For individual income tax purposes, Virginia conforms to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI).

Virginia Code § 58.1-341 provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Va. Code § 58.1-321. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia income tax return.

As a general rule, the Department relies on the accuracy of information and computations reflected on the federal income tax return when reviewing Virginia individual income tax returns. If the information provided on the federal return looks reasonable, there is generally no reason to look behind those computations. However, the Department retains the authority to adjust FAGI where there is clear evidence that the amounts reported on the federal or Virginia income tax return are not consistent with the I.R.C. See Va. Code § 58.1-219.

In the case at hand, the Taxpayers were contacted concerning delinquent Virginia income tax returns. When the delinquent Virginia returns were ultimately filed, the Department requested documentation from the Taxpayers to verify the information reported on the returns. Assessments were issued based on the information at hand when sufficient documentation was not provided.

During the course of this appeal, the Department has been able to verify that the Taxpayers filed federal income tax returns for the taxable years at issue. The return information provided by the I.R.S. is consistent with the Virginia returns provided to the Department by the Taxpayers. Based on the Department's analysis of the federal returns and the facts of this case, the Taxpayer's Virginia returns will be accepted as filed and the statutory assessments for the 2001 through 2003 taxable years will be adjusted accordingly.

The Taxpayers should be aware that should the I.R.S. make any changes to your federal income tax return affecting federal taxable income reported on that return, Va. Code § 58.1-311 requires that they report the change to the Department.

The Code of Virginia sections cited, along with other reference documents, are available online at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-879943594.E