The Department asked me for more documents to support my domicile-change claim and I haven't responded yet -- what happens to my assessment?

Plain-English summary

The IRS flagged that a taxpayer may have owed Virginia income tax across several non-consecutive years -- 2006 through 2008, and 2015 and 2016. He hadn't filed Virginia returns for those years, and after gathering information, the Department determined he was a Virginia domiciliary resident and issued assessments for all of them. In response, he filed nonresident Virginia returns for 2015 and 2016 allocating none of his income to Virginia; the Department adjusted those to resident returns and reissued the assessments. (The 2007 and 2008 assessments were separately abated because he had enough credit for tax paid to another state, "State A," to offset his Virginia liability entirely.) He appealed the remaining years, contending he was a State A resident, and asked in the alternative to at least be allowed a credit for the State A tax he'd paid.

Under Virginia's domicile test, the taxpayer bears the burden of proving both that he abandoned Virginia domicile (with no intent to return) and that he established a new domicile elsewhere (physical presence plus intent to remain permanently or indefinitely). Here, the Department tried to gather the facts needed to evaluate that claim: the taxpayer completed an initial domicile questionnaire, but when the Department followed up in January 2022 with further questions -- including a request for a copy of his 2006 State A tax return -- he didn't respond. A second follow-up request went out in March 2022, and still nothing came back. Because a Department assessment is presumed correct, and the taxpayer carries the burden of proving otherwise (with the law separately barring relief where an erroneous assessment stems from a taxpayer's own willful failure to provide required information), the unanswered requests left his domicile claim unproven.

Rather than closing the matter immediately, though, the Department offered one final opportunity: the taxpayer had 30 days from the letter to either provide the outstanding information or simply file Virginia resident returns for the years at issue. If he does neither, the assessments would be treated as correct and could lead to collection action. The Department also flagged that he should independently review whether he had Virginia filing obligations for any years after 2016 that hadn't yet come up.

What this means for you

Anyone appealing an assessment on a claimed domicile change who receives follow-up document requests from the Department

Respond to them. The burden of proving a domicile change is entirely on you, and if you don't supply the documentation the Department asks for (like a copy of a return you filed in the state you claim as your new domicile), the Department will conclude you haven't met that burden and treat the original assessment as correct.

Taxpayers with gaps in Virginia filings across multiple, non-consecutive years

Each tax year is assessed on its own facts -- here, the same taxpayer had two years (2007-2008) fully abated based on an out-of-state credit while the remaining years' assessments stood, because the domicile and credit evidence differed year to year (or wasn't provided at all for those years).

Anyone who's been given a "final opportunity" deadline by the Department to submit records or file returns

Take it seriously -- if the documentation or returns aren't provided within the stated window (30 days here), the assessments become final and the Department may proceed with collection action.

Common questions

Q: I claimed I moved out of Virginia, but I haven't responded to the Department's requests for supporting documents -- what happens?
A: The Department will conclude you haven't met your burden of proving the domicile change, since you carry that burden entirely, and will treat the original assessment as correct. You may still get a final, time-limited chance to provide the missing information before the assessment becomes final and collectible.

Q: The Department abated my assessment for some years but not others, even though I made the same domicile argument for all of them -- why?
A: Each year is evaluated on its own facts and evidence. If you have enough out-of-state tax credit to offset your Virginia liability for some years but didn't provide sufficient documentation (or lacked enough credit) for other years, the outcome can differ year to year even under the same overall domicile claim.

Q: What happens if I still don't respond within the final deadline the Department gives me?
A: The assessments will be considered correct as issued, and collection action may follow.

Citations and references

• Va. Code § 58.1-302 (domiciliary resident and actual resident defined)
• Va. Code § 58.1-205 (a Department tax assessment is deemed prima facie correct)
• Va. Code § 58.1-1826 (courts may not grant relief where an erroneous assessment resulted from the taxpayer's willful failure or refusal to provide required information)
• Va. Code § 58.1-111 (assessment based on best information available)

Subject

Residency: Domicile - Burden To Establish Change

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-110

Original ruling text

June 9, 2022

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you seek correction of the individual income tax assessments issued to * (the “Taxpayer”) for the taxable years ended December 31, 2006 through December 31, 2008, December 31, 2015, and December 31, 2016.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file Virginia income tax returns for the taxable years at issue. A review of the Department’s records showed that the Taxpayer had not filed returns. The Department requested additional information from the Taxpayer in order to determine if his income was taxable in Virginia. After reviewing the information provided, the Department determined that he was a domiciliary resident of Virginia and issued assessments.

In response, the Taxpayer filed nonresident Virginia income tax returns for the 2015 and 2016 taxable years, allocating none of his income to Virginia. Based on the prior review, the Department adjusted the nonresident returns to resident returns and reissued assessments. The Department’s records indicate that the assessments for the 2007 and 2008 taxable years were abated because the Taxpayer had sufficient credit for taxes paid to * (State A) to offset his Virginia income tax liability.

The Taxpayer appeals, contending he was a resident of State A. In the alternative, the Taxpayer requests that he be allowed to claim a credit for taxes paid to State A.

DETERMINATION

Two classes of residents, a domiciliary resident and an actual resident, are set forth in Virginia Code § 58.1-302. The domiciliary residence of a person means the permanent place of residence of a taxpayer and the place to which he intends to return even though he may reside elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon his Virginia domicile with no intention of returning to Virginia. Concurrently, that person must acquire a new domicile where that person is physically present with the intention to remain there permanently or indefinitely. An actual resident of Virginia means a person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia. A Virginia domiciliary resident, therefore, working in other parts of the country or in another country who has not abandoned his Virginia residency continues to be subject to Virginia taxation. Additionally, a person who is not a domiciliary resident of Virginia, but who stays in Virginia for an aggregate of more than 183 days is also subject to Virginia taxation.

In order to change from one legal domicile to another legal domicile, there must be (1) actual abandonment of the old domicile, coupled with an intent not to return to it, and (2) an acquisition of a new domicile at another place, which must be formed by personal presence and an intent to remain there permanently or indefinitely. The burden of proving that the domicile has been changed lies with the person alleging the change.

In determining domicile, consideration may be given to the individual’s expressed intent, conduct, and all attendant circumstances including, but not limited to, financial independence, profession or employment, income sources, residence of spouse, marital status, situs of real or tangible property, motor vehicle registration and licensing, and such other factors as may be reasonably deemed necessary to determine the person’s domicile. A person’s true intention must be determined with reference to all the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency.

The Department determines a taxpayer’s intent through the information provided. A taxpayer has the burden of proving that he has abandoned his Virginia domicile. If the information is inadequate to meet this burden, the Department must conclude that he intended to remain indefinitely in Virginia.

The Taxpayer completed a domicile questionnaire in response to the Department’s request. In an attempt to gain additional information from the Taxpayer, the Department sent follow-up questions on January 13, 2022, including a request for a copy of Taxpayer’s State A return filed for the 2006 taxable year. When no response was received, the Department sent a second request on March 1, 2022. To date, the Taxpayer has failed to respond with the requested information.

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 Taxpayer to show he was not subject to income tax in Virginia. Furthermore, Virginia 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 taxpayers’ willful failure or refusal to provide the Department with necessary information as required by law.

Because the assessments at issue were made based on the best information available to the Department pursuant to Virginia Code § 58.1-111, the Taxpayer will be given one final opportunity to provide the additional information requested or file Virginia resident income tax returns. The additional information or returns should be submitted within 30 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 information or returns will be reviewed and the assessments will be adjusted, as appropriate. If the information or returns are not received within the allotted time, the assessments will be considered correct and collection actions may result. Further, the Taxpayer should review his circumstances for any taxable years after 2016, and take appropriate actions to comply with any filing requirements he may have had with Virginia based on such circumstances.

The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. 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/3748.X