Could Virginia assess a nonfiler from an IRS audit adjustment and give notice at the taxpayer's last known address?

Subject

Taxpayer had not filed a Virginia individual income tax return.

Plain-English summary

The IRS audited a taxpayer's 2011 federal return and sent the adjustment to Virginia. The taxpayer had filed no Virginia return and did not respond when the Department asked for a return or evidence that Virginia tax did not apply.

Virginia upheld the resulting assessment. Residents generally must file a Virginia return when required to file federally, and federal changes must be reported to Virginia. When a taxpayer fails to report the change, Va. Code § 58.1-312 A 3 permits an assessment without the ordinary time limit.

The taxpayer argued that collection began without notice. The Department produced a November 2015 letter mailed to the last known address that explained the proposed assessment and requested information, satisfying the notice rule applied in the ruling. Because the assessment followed the IRS's final determination, any disagreement with federal adjusted gross income had to be resolved with the IRS.

Citations and references

• Va. Code §§ 58.1-341, 58.1-321, 58.1-311, and 58.1-312 A 3.
• IRC § 6103(d).
• 23 VAC 10-20-160 D 2.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 16-218

Original ruling text

December 22, 2016

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, 2011.

FACTS

The Taxpayer was audited by the Internal Revenue Service (IRS) for the 2011 taxable year. The IRS notified the Department of adjustments it made to the Taxpayer's federal income tax return. A review of the Department's records showed that the Taxpayer had not filed a Virginia individual income tax return. The Department requested that the Taxpayer file a return or provide information to verify that he was not subject to Virginia income tax. When no response was received, the Department issued an assessment. The Taxpayer filed an appeal and requested the Department provide documentation to support its assessment.

DETERMIATION

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. When a resident does not file a proper Virginia return, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will help in determining the resident’s tax liability. See Public Document (P.D.) 14-33 (3/7/2014) and P.D. 15-49 (4/3/2015).

Virginia Code § 58.1-311 requires individuals to report a change or correction in federal taxable income within one year of the final determination of such change or correction by filing an amended return with the Department. If the taxpayer fails to file an amended return, Va. Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time. Where the IRS has audited the federal taxable income of a taxpayer, the Department typically does not look behind the IRS's final determination. See Public Document (P.D.) 11-107 (6/14/2011).

The Taxpayer argues the Department failed to notify him of the assessment prior to commencing collection actions. Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-20-160 D 2, when an assessment is made by the Department, a written notice of the assessment must be delivered to the taxpayers last known address. A letter dated November 12, 2015, copy enclosed, was issued to the Taxpayer using the address on file, which explained the proposed assessment and requested the Taxpayer to file a return or provide additional information.

As indicated above and in the November 15 letter, the Department's assessment was based on income reported to the IRS as required by employers and certain other payers. A list of the information return information provided by the IRS is also enclosed.

Because the Department's assessment was based on the information received from the IRS, the Taxpayer must contact the IRS to dispute any discrepancies in his federal adjusted gross income (FAGI). See P.D. 15-204 (10/20/2015). Based on the foregoing, the 2011 assessment is upheld and remains due and payable. The Taxpayer will receive updated bill with accrued interest to date. The bill should be paid within 30 days of the bill date to avoid the accrual of additional interest.

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

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-6297041051.D