Could taxpayers defeat a Virginia resident assessment by demanding proof after ignoring requests prompted by a federal return using a Virginia address?

Subject

Information from the IRS enabled the Department to determine resident's tax liability.

Plain-English summary

Virginia upheld the already-paid 2007 assessment because the taxpayers did not rebut the information available to the Department. Federal records showed that their 2007 federal return used a Virginia address. Virginia requested information to determine whether their income was subject to state tax, but they did not respond.

Federal law authorized the Department to obtain information relevant to resident liability, and Virginia law allowed it to investigate records and assess from available information. Assessments are presumed correct, so the taxpayers had to supply objective evidence showing the federal information was wrong.

They offered no such evidence. The assessment was upheld, and because it had already been satisfied, no further action was required.

What this means for you

• A Virginia address on federal records can trigger a residency inquiry.
• Respond with objective domicile and income evidence before Virginia estimates liability.
• An address alone is not the full domicile test, but silence leaves the assessment based on available facts.

Citations and references

• Va. Code §§ 58.1-301, 58.1-322, 58.1-219, 58.1-111, 58.1-205, and 58.1-1826.
• IRC § 6103(d).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-175

Original ruling text

November 2, 2012

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter appealing the Virginia individual income tax assessments issued to * (the "Taxpayers") for the taxable year ended December 31, 2007.

FACTS

The Department received information from the Internal Revenue Service that tax documents for the 2007 taxable year were sent to the Taxpayers at a Virginia address. The Department requested additional information to determine if the Taxpayers income was subject to Virginia individual income tax. When the Taxpayers did not respond to the information requests, the Department issued an assessment for the year at issue. The Taxpayers appeal the assessment, contending the Department has no proof that the he was a Virginia resident during the 2007 taxable year.

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 IRC 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). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322.

IRC § 6103(d) authorizes the Department to obtain information from the IRS that will enable the Department to determine a resident's tax liability. According to the federal documents obtained, the Taxpayers filed their 2007 federal income tax return using a Virginia address.

Virginia Code § 58.1-219 allows the Department the authority to investigate any books and records of a taxpayer in order to ascertain the proper tax liability. The Department made several requests for the Taxpayers to provide information to ascertain if their income was subject to Virginia income tax. When the Taxpayers failed to comply, the Department made an assessment based on the information it had available. See Va. Code § 58.1-111.

Under the provisions of Va. Code § 58.1-205 any proceeding relating to the interpretation of the tax laws of Virginia, an "assessment of a tax by the Department shall be deemed prima facie correct." As such, the burden of proof is on the Taxpayers to show they were not subject to income tax in Virginia. In this case, the Taxpayers have provided no objective evidence to show that the information properly obtained by the Department from the IRS is incorrect.

In addition, Va. Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the assessment was attributable to a taxpayer's willful failure or refusal to provide the Department with necessary information as required by law.

Based on the applicable law cited above and the information presented, there is no basis to abate the Department's assessment for the 2007 taxable year. Accordingly, the assessment is upheld. The Department's records indicate the assessment has been previously satisfied; therefore, no further action is required.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this determination, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4971077937.D