Could a taxpayer keep lower Virginia FAGI when IRS records showed omitted wages and cancellation-of-debt income?

Subject

Virginia “conforms” to federal law in that it starts the computation of Virginia taxable income with FAGI.

Plain-English summary

Virginia reviewed an individual's 2011 return and found that its federal adjusted gross income was lower than the amount reported to the IRS.

Federal records showed wages on a Form W-2 and cancellation-of-debt income on a Form 1099-C that were not included in the Virginia return. Because Virginia begins its income-tax calculation with federal adjusted gross income, the Department added those items to match the IRS information.

The taxpayer provided no objective evidence showing that the federal records or Virginia adjustment were wrong. The assessment was presumed correct and was upheld.

Citations and references

• Va. Code §§ 58.1-301, 58.1-322, 58.1-205, and 58.1-111.
• IRC § 6103(d).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 16-98

Original ruling text

May 20, 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 individual income tax return. Under review, the Department made adjustments to federal adjusted gross income (FAGI) to reflect the amount reported by the Internal Revenue Service (IRS). The adjustment resulted in additional tax due, and the Department issued an assessment. The Taxpayer appeals, contending that the amount of FAGI he reported on his return was correct.

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 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.

IRC § 6103(d) authorizes the Department to obtain information from the IRS that will enable the Department to determine a resident's tax liability. In this case, it appears that the Taxpayer did not include wages reported to the IRS on a Federal Wage and Tax Statement (Form W-2) and debt forgiveness from a Cancellation of Debt Statement (Form 1099 C) in the FAGI on his Virginia income tax return. As a result, the Department adjusted the Taxpayer's FAGI to match the amount of income reported on these two statements.

Under the provisions of Va. Code § 58.1-205, 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 Taxpayer to show the Department's assessment is incorrect.

The Department adjusted the Taxpayer's return based on the information available as permitted by Virginia statute. See Va. Code § 58.1-111. The Taxpayer has provided no objective evidence to show that the Department's assessment is incorrect. Therefore, I find no basis to abate the assessment for the 2011 taxable year.

The Taxpayer will receive an updated bill with accrued interest to date. The Taxpayer should remit payment of the outstanding balance within 30 days of the updated bill date to avoid the accrual of additional interest.

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/1-6211358018.B