Could a Virginia resident obtain out-of-state tax credits without filing Virginia returns for 2007 and 2008?

Plain-English summary

Virginia required the taxpayer to file her missing 2007 and 2008 resident returns before it would determine any out-of-state tax credit or refund. She conceded that she remained domiciled in Virginia and provided copies of returns filed in another state, but had filed neither original nor amended Virginia returns for the years at issue.

For 2007, the Department had estimated tax from information in its possession after the taxpayer did not respond to a domicile inquiry. The assessment was issued in November 2010 and paid through collection action on April 14, 2011. Her later refund request was treated as an administrative appeal under the protective-claim statute.

Virginia residents may receive a credit for qualifying income tax paid to another state, but they must file Virginia returns. The Department directed the taxpayer to file both returns within 30 days so it could calculate the correct Virginia liability, adjust the estimated assessments, and issue any refund warranted. Without the returns, the existing assessments would remain correct and collection would resume.

What this means for you

• An out-of-state return alone does not establish the final Virginia credit.
• A Virginia resident must file the corresponding Virginia return so the Department can calculate liability and credits.
• When no return is filed, the Department may estimate tax from information available to it.
• A protective refund claim can preserve review of a paid assessment, but it does not supply the missing return information.

Common questions

Q: Did the Department grant the out-of-state credits immediately?
A: No. It required the taxpayer to file Virginia returns before calculating any adjustment.

Q: What happened if the taxpayer filed within 30 days?
A: The Department would adjust the assessments and issue refunds as warranted.

Q: What happened if she did not file?
A: The estimated assessments would be treated as correct and collection action would resume.

Citations and references

• Va. Code §§ 58.1-111, 58.1-332, 58.1-341 A, and 58.1-1821 through 58.1-1824.
• Virginia Public Documents 11-64 and 12-113.

Subject

Taxpayer has filed neither an original nor amended income tax returns

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-98

Original ruling text

June 11, 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.) 12-113 (7/17/2012), to * (the "Taxpayer") for the taxable years ended December 31, 2007 and 2008.

FACTS

In P.D. 12-113, the Department held that the Taxpayer had failed to show that she had abandoned her Virginia domicile in 2008, but granted the Taxpayer additional time to provide the documentation to support her position. The Taxpayer has conceded that she did not change her domiciliary residence. Further, she asserts that the facts as applied to the 2008 taxable year are the same for 2007 and requests a credit for income tax paid to another state for the 2007 and 2008 taxable years.

DETERMINATION

Statute of Limitations

For the 2007 taxable year, the Taxpayer failed to file a Virginia income tax return. The Department received information from the Internal Revenue Service (IRS) that tax documents for the 2007 taxable year were sent to the Taxpayer at a Virginia address. The Department requested additional information from the Taxpayer in order to determine her domicile. When the Taxpayer did not respond to the information request, the Department issued an assessment in November 2010. The 2007 assessment was paid on April 14, 2011, as a result of collection action taken by the Department. The Taxpayer is now claiming she is entitled for an out-of-state tax credit that would result in a partial refund.

Generally, Va. Code § 58.1-1823 allows a taxpayer to file an amended return within three years from the last day prescribed by law for the timely filing of the return. This statute includes a number of exceptions that extend the general statute of limitations. See Public Document (P.D.) 11-64 (4/21/2011). In this case, the Taxpayer has filed neither an original nor amended income tax return for 2007.

In addition, Va. Code § 58.1-1824 permits any person, who has paid an assessment of taxes administered by the Department, to preserve his judicial remedies by filing a claim for refund with the Department within three years of the date such tax was assessed. Pursuant to the authority granted the Tax Commissioner under Va. Code § 58.1-1824, a protective claim for refund can be held pending the outcome of another case before the courts or the claim may be decided based upon its merits pursuant to Va. Code § 58.1-1821. As permitted by statute, the Taxpayers' request has been treated as an appeal under Va. Code § 58.1-1821.

Credit for Tax Paid Other States

Virginia Code § 58.1-332 allows Virginia residents a credit against their income tax liability when they pay income tax to another state on earned or business income, or on any gain from the sale of a capital asset. In this case, the Taxpayer did not file Virginia income tax returns for the 2007 and 2008 taxable years but has provided copies of the returns she filed in the other state.

Virginia Code § 58.1-111 grants the Department the authority to make an estimate of the amount of taxes due the Commonwealth by a Virginia resident who has failed to file a Virginia return, from any information in its possession. When a taxpayer fails or refuses to file the return, or files an improper return, the Department may estimate the tax, penalty and interest based on any information in its possession.

Further, Virginia Code § 58.1-341 A requires that a taxpayer file an individual income tax return by May 1 of the year following the tax year for which the return is filed. As a domiciliary resident of Virginia, the Taxpayer is required to file Virginia income tax returns for the 2007 and 2008 taxable years.

As indicated above, the assessments were made based on the best information available to the Department. The Taxpayer may have additional information that more accurately reflects her Virginia taxable income. Accordingly, the Taxpayer is hereby requested to file Virginia individual income tax returns for the 2007 and 2008 taxable years to more accurately reflect her Virginia income tax liability.

The requested returns should be filed within 30 days from the date of this letter. Please send the returns to the Department's Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attn: *. Upon receipt of said returns, the assessments will be adjusted accordingly and refunds issued as warranted. If the returns are not filed, the assessments will be considered to be correct and collection action will resume.

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 about this determination, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5237018305.D