Can a Virginia taxpayer avoid assessments for incorrect itemized deductions by blaming the return preparer?

Subject

Department disallowed itemized deductions/Taxpayer v Preparer responsible returns.

Plain-English summary

Virginia upheld the assessments. The taxpayer conceded that itemized deductions for charitable contributions, job expenses, and miscellaneous expenses were incorrect, but argued that the return preparer should be responsible.

The Tax Commissioner said Virginia uses self-assessment, so taxpayers are responsible for the information on their own returns. Because the taxpayer knew or should have known she had not incurred the expenses supporting the deductions, reliance on the preparer did not excuse them.

The ruling recognized that a taxpayer may have recourse against a professional whose inaccurate advice causes a penalty. But the Department could not transfer the taxpayer's Virginia liability to the preparer.

What this means for you

• Hiring a preparer does not shift responsibility for the facts reported on your Virginia return.
• You should review deductions for expenses you actually paid or incurred before signing.
• A claim against a preparer is separate from the Department's collection of tax from the taxpayer.

Common questions

Did the taxpayer dispute that the deductions were wrong?

No. The ruling says the taxpayer conceded that the reported itemized deductions were incorrect.

Could Virginia assess the preparer instead?

No. The Department said it lacked authority to assess the taxpayer's liability against the preparer.

What happened to the assessments?

They were upheld. The ruling stated that no additional interest would accrue if the outstanding balance was paid within 30 days.

Citations and references

• Va. Code § 58.1-1821, identified in the ruling's application heading.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-82

Original ruling text

May 31, 2011

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of individual income tax assessments issued to * (the "Taxpayer") for the taxable years ended December 31, 2007 and 2008.

FACTS

The Taxpayer is a Virginia resident who filed individual income tax returns for the taxable years at issue. Under audit, the Department disallowed itemized deductions for charitable contributions, job expenses, and certain miscellaneous expenses. The Department also adjusted the Taxpayer's mortgage interest deduction.

The Taxpayer appeals the assessments, contending she relied on the expertise of the tax preparer to complete the returns properly. The Taxpayer concedes that the itemized deductions reported were incorrect, but believes the tax preparer should be held responsible for the incorrectly completed returns.

DETERMINATION

Virginia's taxing system is based largely on the theory of self assessment. A taxpayer computes his own income and tax, fills out his own return, files the return, and pays the tax indicated. Virginia has implemented a self-assessment system based on the federal system because it is, less intrusive upon taxpayers, simpler, and less costly to administer. Consequently, taxpayers are responsible for the information provided on income tax returns.

The Taxpayer knew or should have known she did not incur the expenses on which the tax preparer based the deductions. As such, the undocumented deductions reported on the tax returns cannot be excused by the Taxpayer's reliance on the tax preparer.

Further, in a situation where a taxpayer relies on an accountant, lawyer, tax preparer or other tax professional and such professional provides inaccurate or erroneous advice that results in a penalty, the taxpayer has recourse against the tax professional for the error. The Department does not have the authority to assess the taxpayer's liability against the tax preparer in such circumstances.

The Taxpayer's reliance on the tax preparer in preparing the 2007 and 2008 income tax returns, while understandable, does not relieve her of the responsibility for ensuring that the information reported on the return is accurate. Accordingly, the assessments are upheld.

A schedule is enclosed showing the outstanding balance. No additional interest will accrue provided the total outstanding balance is paid within 30 days from the date of this letter. Payment should be sent to: Virginia Department of Taxation, Attention: *, Office of Tax Policy, Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23218-7203.

If you have any questions regarding this response, you may contact * at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4592301935.E