Could a taxpayer reverse Virginia's 2011 federal-income adjustment without providing the requested official IRS transcript?

Subject

The burden of proof is on the Taxpayers to show they were not subject to income tax in Virginia.

Plain-English summary

A Virginia resident's 2011 return reported federal adjusted gross income different from the amount in IRS information. Virginia matched its records to the IRS figure and assessed additional tax.

Virginia income tax generally starts with federal adjusted gross income. A taxpayer must report a final federal change, and the Department may assess when that change is not reported.

The taxpayer claimed the adjustment was wrong but did not answer Virginia's request for official IRS documentation. Because the assessment was presumed correct and was based on the best information available, the unsupported objection did not establish an error.

Virginia allowed 45 days to provide an official transcript of the 2011 federal return. The Department would adjust the assessment if warranted; otherwise it would remain correct and collection could proceed.

Citations and references

• Va. Code §§ 58.1-301, 58.1-322, 58.1-311, 58.1-312 A 3, 58.1-205, 58.1-1826, and 58.1-111.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 16-33

Original ruling text

March 23, 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 filed a 2011 Virginia resident return. The Department received information from the Internal Revenue Service (IRS) indicating the federal adjusted gross income (FAGI) reported to the IRS did not match the FAGI reported to the Department. The Department adjusted its records to match the IRS records and issued an assessment for additional tax. The Taxpayer filed an appeal, contending the Department erroneously changed his FAGI.

DETERMINATION

Virginia Code § 58.1-301 provides 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 the FAGI. Income 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 § 58.1-311 requires any individual 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.

The Taxpayer asserts that the Department's adjustment is erroneous. By letter dated September 17, 2015, the Department requested that the Taxpayer provide official documentation from the IRS to support his claim. As of the date of this letter, no response has been received.

Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws of Virginia, an "assessment of a tax by the Department shall be deemed prima facie correct". As such, the burden of proof is on the Taxpayers to show they were not subject to income tax in Virginia. Furthermore, Va. Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the erroneous assessment is attributable to the taxpayer's willful failure or refusal to provide the Department with necessary information as required by law.

The assessment was made based on the best information available to the Department pursuant to Va. Code § 58.1-111. The Taxpayer may have information that better represents his Virginia income tax liability for the taxable year at issue. Therefore, the Taxpayer will be granted one last opportunity to provide an official transcript of his 2011 federal income tax return. All documentation should be submitted within 45 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *. Upon receipt, the documentation will be reviewed and the assessment will be adjusted, as appropriate. If the documentation is not received within the allotted time, the assessment will be considered to be correct as issued and collection actions may result.

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 determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-6119056867.D