Can taxpayers reopen assessments after exhausting appeals, and do photographs prove the value of donated items for a charitable deduction?

Plain-English summary

The taxpayers asked the Department to reconsider P.D. 18-144, which had upheld assessments for 2010 and 2011 and given them a last chance to substantiate itemized deductions for 2014-2016. The Commissioner denied relief on every year.

• 2010 -- already decided. The 2010 assessment had been addressed in prior determinations (P.D. 17-78, 17-154, 18-144); the Department would issue no further determination.
• 2011 -- reconsideration too late. The 2011 assessment was issued when the taxpayers failed to file an amended return reporting an IRS change, so the Department adjusted the return from federal information (Va. Code Sec. 58.1-312 A 3). A reconsideration must be requested within 45 days (23 VAC 10-20-165 F), and the taxpayers missed it -- so the assessment stands and their administrative rights are exhausted.
• 2014-2016 -- deductions not substantiated. Given a final chance, the taxpayers verified some itemized deductions but not enough to exceed the standard deduction, so no change was made. On appeal they added photographs of items they claimed to have donated -- but photographs alone do not establish the items' value for a charitable deduction, and the Department may adjust itemized deductions even without an IRS audit of them.

The Commissioner explained that any further challenge must be pursued as a judicial remedy in circuit court, filed within the statute of limitations (Va. Code Sec. 58.1-1825).

What this means for you

Reconsideration has a hard 45-day deadline

If you disagree with a determination, request reconsideration within 45 days (23 VAC 10-20-165 F). Miss it and the assessment becomes final and your administrative options end.

Report federal changes yourself

When the IRS changes your return, file an amended Virginia return. If you don't, the Department can assess from the federal information it has (Va. Code Sec. 58.1-312 A 3).

Substantiate itemized deductions -- and prove value, not just donation

Deductions only help if they exceed the standard deduction, and you must document them. For donated goods, photographs may show you had the items but not what they were worth; you need records establishing value.

Common questions

Can the Department adjust my itemized deductions if the IRS never audited them? Yes. Virginia can independently disallow unsubstantiated itemized deductions regardless of whether the IRS reviewed them.

Why didn't my photographs support the charitable deduction? Photographs may show the items existed but do not establish their value, which is what the deduction requires.

Is there anything left after reconsideration is denied? Only a judicial appeal to circuit court, filed within the statute of limitations (Va. Code Sec. 58.1-1825).

Citations and references

• Va. Code Sec. 58.1-312 A 3 -- the Department may assess when a taxpayer fails to report a federal change.
• 23 VAC 10-20-165 F -- reconsideration must be requested within 45 days.
• Charitable deduction substantiation -- photographs alone do not establish the value of donated items.
• Va. Code Sec. 58.1-1825 -- further challenge is by judicial appeal to circuit court within the limitations period.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-69

Original ruling text

April 28, 2020

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek reconsideration of the Department’s determination letter, issued as Public Document (P.D.) 18-144 (7/17/2018), to * (the “Taxpayers”) for the 2010, 2011 and 2014 through 2016 taxable years.

FACTS

In P.D. 18-144, the Department upheld assessments issued to the Taxpayers for the 2010 and 2011 taxable years. In that determination, the Department also gave the Taxpayers one final opportunity to provide information to substantiate the itemized deductions they claimed for the 2014 through 2016 taxable years. The Taxpayers submitted some information in response, but the Department determined that the Taxpayers could not substantiate itemized deductions greater than the standard deduction for any of the taxable years at issue. As a result, the Department made no changes to the 2014 through 2016 taxable year assessments. The Taxpayers appealed, contending the Internal Revenue Service (IRS) has not made a final determination as to the 2010 or 2011 taxable years. The Taxpayers also assert that the IRS never audited the itemized deductions claimed for the 2014 through 2016 taxable years.

DETERMINATION

Taxable Year 2010 Assessment

The Department previously addressed the Taxpayers’ appeal of the assessment for the 2010 taxable year in P.D. 17-78 (5/23/2017) and P.D. 17-154 (8/25/2017). As stated in P.D. 18-144, the Department will not issue another determination with regard to the 2010 taxable year.

Taxable Year 2011 Assessment

The assessment for the 2011 taxable year was issued when the Taxpayers failed to file an amended Virginia income tax return to report changes the IRS made to their federal return. As explained in P.D. 18-144, the Department adjusted the Taxpayers’ 2011 return based on the federal information available from the IRS as permitted by Virginia Code § 58.1-312 A 3.

Under Title 23 of the Virginia Administrative Code (VAC) 10-20-165 F, a taxpayer who disagrees with the Department’s final determination may request a reconsideration of the determination within 45 days. The Taxpayers continue to dispute the validity of the 2011 assessment, but they failed to file a reconsideration request as to that assessment within the time required. Therefore, the assessment is upheld. The Taxpayers have exhausted their administrative appeal rights for this assessment in accordance with Virginia’s law, regulations, and policies. Therefore, the Department will not issue another determination with regard to the 2011 taxable year.

Taxable Years 2014 through 2016 Assessments

In P.D. 18-144, the Taxpayers were provided one last opportunity to provide information to substantiate the itemized deductions they claimed for the 2014 through 2016 taxable years. The Taxpayers submitted additional information, and the Department was able to verify some of the itemized deductions claimed, but not enough that they exceeded the standard deduction allowable on the Virginia income tax returns. Accordingly, the Department did not adjust the assessments.

The Taxpayers provided no additional information regarding the itemized deductions with their appeal and make no arguments regarding how the Department erred in disallowing the deductions other than to assert that they were disallowed without an audit by IRS. Subsequently, the Taxpayers submitted several photographs of items they claim were charitable contributions. Even if the Taxpayers donated such items, the photographs alone are insufficient evidence to establish their value for purposes of the charitable deduction. P.D. 18-144 previously explained the legal basis by which the Department is permitted to adjust itemized deductions for purposes of computing a taxpayer’s Virginia income tax liability, even in the absence of an IRS audit of those deductions. Because the Taxpayers have provided no further factual or legal basis to show the Department’s adjustments were erroneous, the assessments for the 2014 through 2016 taxable years are upheld.

CONCLUSION

The Department has previously addressed the 2010 taxable year assessment in prior determinations and has expressly stated that it will make no further determination as to that assessment. In addition, the Taxpayers’ reconsideration request as to the 2011 taxable year assessment is denied because it was not timely filed. Last, the photographs provided are insufficient evidence to establish the value of the items depicted for purposes of the charitable deduction and the Taxpayers have provided no further factual or legal basis to show that the Department’s assessments for the 2014 through 2016 taxable years were erroneous. Those assessments, therefore, are upheld.

The Department’s records indicate the 2010 and 2014 taxable year assessments have been paid. Updated bills will be issued for the balance due on the 2011, 2015 and 2016 assessments. The Taxpayers should remit payment immediately to avoid additional collections actions.

While I recognize your continuing disagreement with the validity of the assessments for the taxable years at issue, the Department has clearly explained the authority for its adjustments, assessments, and collection actions. If the Taxpayers wish to appeal this matter further, they may pursue a judicial remedy in Virginia’s court system. The Taxpayers should be aware that any court application must be filed within the statute of limitations. See Virginia Code § 58.1-1825.

The Code of Virginia sections, regulation 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/3311.M

Related Documents

18-144

17-78

17-154

18-144