Could a 2005 Virginia assessment be overturned by arguing that IRS information was obtained unlawfully, without evidence of nonresidency?

Plain-English summary

Virginia again upheld the taxpayer's 2005 assessment because IRS information sharing was authorized and the taxpayer produced no objective evidence that he was not a Virginia resident. The Department had received federal income information after no Virginia return was filed.

IRC § 6103(d) allowed Virginia to obtain federal information to determine a resident's state liability. Virginia law also authorized an estimated assessment when a person refused to file a valid return, and that assessment was presumed correct.

The taxpayer repeated the argument that the federal information was obtained illegally but did not show nonresidency or lack of a filing duty. The Department treated P.D. 12-121 as its final administrative determination and upheld the assessment.

What this means for you

• Challenging information sharing does not replace evidence about domicile or filing status.
• An estimated assessment starts with a statutory presumption of correctness.
• Objective residency records are essential when contesting a resident return obligation.

Common questions

Q: Was the IRS information exchange authorized?
A: Yes, under IRC § 6103(d), as explained in the ruling and P.D. 12-121.

Q: Could the taxpayer still go to court?
A: Yes. The ruling identified the judicial remedy and deadline under Va. Code § 58.1-1825.

Citations and references

• IRC § 6103(d).
• Va. Code §§ 58.1-111, 58.1-205, and 58.1-1825.
• Virginia Public Document 12-121 (July 26, 2012).

Subject

Taxpayer has provided no objective evidence that he was not a resident of Virginia

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-10

Original ruling text

January 31, 2013

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek reconsideration of the Department's determination letter, issued as Public Document (P.D.) 12-121 (7/26/2012), to * (the "Taxpayer") for the taxable year ended December 31, 2005.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating the Taxpayer had income for the taxable year at issue and issued an assessment. The Taxpayer filed an appeal, contending the information from the IRS was illegally obtained and the information agreement between the IRS and the Department exceeds the authority of the Internal Revenue Code (IRC).

In P.D. 12-121, the Department determined that the information provided by the IRS was legally, obtained and upheld the assessment. The Taxpayer requests a redetermination, reiterating his argument that the Department failed to follow federal statutory requirements when it obtained the Taxpayer's federal tax information.

DETERMINATION

As set forth in P.D. 12-121, when a Virginia resident does not file a Virginia return, IRC § 6103(d) authorizes the Department to obtain information from the IRS in order to determine that resident's tax liability. In addition, Va. Code § 58.1-111 authorizes the Department to estimate tax liability when a person refuses to file a valid return. Such assessment is deemed prima facie correct. See Va. Code §58.1-205.

The Taxpayer has provided no objective evidence that he was not a resident of Virginia during the 2005 taxable year and was not required to file a Virginia income tax return. As such, the Department was well within its legal authority to issue an assessment for the 2005 taxable year as permitted under Va. Code § 58.1-111.

While I recognize your continuing disagreement with the validity of the assessment, P. D. 12-121 clearly explains the Department's authority for its assessment, and constitutes the Department's final determination on this issue. Accordingly, the assessment for the 2005 taxable year is upheld. The Taxpayer should remit payment in accordance with the enclosed schedule immediately to avoid the additional collection actions.

If the Taxpayer wishes to appeal this matter further, he may pursue a judicial remedy under Va. Code § 58.1-1825. The court application must be filed within three years from the date of the assessment or one year from the date of the Department's determination in P.D. 12-121, whichever is later.

The Code of Virginia sections and public document 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 regarding this response, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5168634197.o