Could a Virginia resident reduce an estimated 2012 nonfiler assessment by filing the actual return with income and deductions?

Subject

Actual resident return could replace estimated nonfiler assessment

Plain-English summary

Virginia allowed the taxpayer to replace the estimated assessment by filing the actual 2012 return. A Virginia resident generally had to file when federal or Virginia income exceeded the applicable threshold.

Because the taxpayer did not respond with enough records, the Department estimated income and tax from available IRS information. That estimate did not account for every deduction the taxpayer might substantiate.

Result: the taxpayer received 30 days to file a Virginia resident return. Virginia would process it and adjust the assessment; without it, the information-based estimate would stand.

What this means for you

• An estimated nonfiler assessment is not a substitute for filing the actual return.
• Report the correct federal starting income and supported Virginia adjustments.
• Respond promptly to Department information requests.
• Unsupported assertions about lower income or deductions may not change an estimate.

Common questions

Q: Did Virginia deny all deductions permanently?

A: No. The taxpayer could claim supported amounts on the actual return.

Q: Why could Virginia estimate the tax?

A: The taxpayer had not filed or provided sufficient information.

Citations and references

• Va. Code §§ 58.1-111, 58.1-301, 58.1-321, and 58.1-341; IRC § 6103(d).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-195

Original ruling text

October 16, 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, 2012.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia individual income tax return for the 2012 taxable year. The Department requested information to verify whether the Taxpayer was subject to Virginia income tax. When a response was not received, the Department issued an assessment. The Taxpayer filed an appeal, contending that the Department assessed tax on a higher amount of income than he actually had for the 2012 taxable year and did not account for any deductions for which he was eligible.

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 Internal Revenue Code (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.

Virginia Code § 58.1-341 provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Va. Code § 58.1-321. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia individual income tax return. When a resident does not file a proper Virginia return, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will enable the Department to determine the resident's tax liability.

In addition, when a taxpayer fails or refuses to provide documentation sufficient to calculate an accurate liability, Va. Code § 58.1-111 permits the Department to make an estimate of the amount of taxes due from any information in its possession and issue an assessment to such taxpayer.

The assessment at issue was based on information available to the Department pursuant to Va. Code § 58.1-111. The Taxpayer may have additional information that would more accurately reflect his Virginia taxable income. Accordingly, the Taxpayer should file a Virginia income tax return for the 2012 taxable year. The return should be submitted to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: * within 30 days from the date of this letter. Once the return is received, it will be processed and the assessment adjusted accordingly. If the return is not received within the allotted time, the Department's assessment will be considered to be correct as issued and collection actions 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/1-6048701092.M