Should a taxpayer who moved into Virginia in May 2010 file as a full-year resident after an IRS income adjustment?

Subject

May 2010 move required a Virginia part-year resident return

Plain-English summary

The taxpayer should have filed as a part-year resident, not a full-year resident. He lived in another state before moving to Virginia in May 2010, when he changed domicile.

Virginia taxed a part-year resident on income and adjustments attributable to the Virginia-residence period. Personal exemptions and the standard deduction could also be prorated under the stated rules.

Result: the taxpayer received 30 days to file Form 760PY and include the IRS federal-income adjustment if applicable. Virginia would then recalculate the assessment.

What this means for you

• Use a part-year return when domicile changes during the year.
• Allocate income, deductions, and Virginia modifications to the residence period.
• Reconcile federal audit changes with the correct state filing status.
• Preserve documents proving the move date and domicile change.

Common questions

Q: Was the taxpayer a Virginia resident for all of 2010?

A: No. The ruling found Virginia domicile began in May.

Q: Was the assessment amount final?

A: Not if the taxpayer timely filed the requested part-year return.

Citations and references

• Va. Code §§ 58.1-302, 58.1-303, and 58.1-321.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-190

Original ruling text

September 30, 2015

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessment issued to * (the "Taxpayer") for the taxable year ended December 31, 2010.

FACTS

The Taxpayer filed a 2010 Virginia resident individual income tax return. The Department received a federal audit adjustment from the Internal Revenue Service (IRS) indicating that the Taxpayer underreported his federal adjusted gross income (FAGI). As a result, the Department issued an assessment for additional tax and interest. The Taxpayer appeals the assessment, contending that he had no income once he moved from * (State A) to Virginia in May 2010.

DETERMINATION

Residency

Virginia Code § 58.1-302 sets forth two classes of residents, a domiciliary resident and an actual resident. The domiciliary residence of a person means the permanent place of residence of a taxpayer and the place to which he intends to return even though he may reside elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon his Virginia domicile with no intention of returning to Virginia. Concurrently, that person must acquire a new domicile where that person is physically present with the intention to remain there permanently or indefinitely. An actual resident of Virginia means a person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia.

The Taxpayer states that he moved into Virginia during 2010. Prior to relocating to Virginia, the Taxpayer resided in State A for the 2010 taxable year. Based on the information provided, the Taxpayer changed his domiciliary residence to Virginia in May 2010. Under such circumstances, the Taxpayer was not a resident of Virginia for the entire 2010 taxable year.

Part-Year Residents

Virginia Code § 58.1-303 provides that a taxpayer who becomes a resident of another state during the taxable year is subject to taxation for the period in which he was a Virginia resident. Accordingly, Virginia taxable income is computed by determining income, deductions, subtractions, additions and modifications attributable to the period of residence in Virginia. In addition, part-year residents may claim a portion of their Virginia personal exemptions, but the exemptions will be prorated based upon the number of days that the taxpayer was a Virginia resident. Further, part-year residents may claim a prorated Virginia standard deduction if they claim the standard deduction for federal income tax purposes.

The Taxpayer changed his domiciliary residence to Virginia in May 2010; therefore, he would be considered to be a part-year resident under Virginia law. Instead of filing a Virginia resident return (Form 760), an individual who moves into Virginia during a taxable year would file a part-year return (Form 760PY). Because the Taxpayer moved into Virginia and met the filing threshold under Va. Code § 58.1-321, the Taxpayer is required file a 2010 Form 760PY and report only the income he received while residing in Virginia.

The Taxpayer should file a Form 760PY for the 2010 taxable year. The return should reflect the adjustment to the Taxpayer's FAGI made by the IRS if applicable. The return should be filed within 30 days of the date of this letter and mailed to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23216-7203, Attention: *. Once the return is received, it will be processed and the assessment will be adjusted accordingly. If such return is not filed within the allotted time, the assessment will be considered to be correct and collection action will resume.

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

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-6048701068.B