The IRS told Virginia I owed tax for years I never filed a Virginia return, and I didn't appeal within 90 days -- can I still dispute the assessed amount?

Plain-English summary

A Virginia resident filed federal income tax returns for 2013, 2014, and 2015 but never filed the corresponding Virginia returns. Using information the IRS shared with it under federal law, the Department determined he'd had enough income to require Virginia filings and issued assessments dated February 23, 2017 (for 2013), and May 21, 2018 and May 31, 2018 (for 2014 and 2015). The taxpayer eventually appealed, arguing the assessed amounts were too high given his actual income.

The Department never reached that argument on the merits. Virginia Code § 58.1-1821 gives a taxpayer only 90 days from the date of an assessment to file a complete administrative appeal, and Virginia's regulations describe that deadline as strictly enforced. Counting 90 days from each assessment date, the deadlines fell in May 2017 and August 2018 -- and the taxpayer's appeal came in well after all three had passed. That made the appeal time-barred, regardless of whether the assessed amounts were actually accurate.

That wasn't the end of the story, though. Because the assessments were built from IRS-supplied information rather than actual Virginia returns, Virginia law treats them as based on the "best information available" -- correct unless and until the taxpayer supplies something more accurate. The Department's practical fix was to invite the taxpayer to simply file real Virginia returns for 2013-2015; once filed, the Department said it would review them and adjust the assessments accordingly, separate from (and not dependent on) the time-barred administrative appeal.

What this means for you

Anyone who gets an IRS-triggered Virginia assessment for years they never filed

The Department can and does use information the IRS shares with it to assess Virginia tax on residents who had a federal filing obligation but skipped the Virginia return. The 90-day clock to formally appeal that assessment starts on the assessment date itself, not on whenever you get around to reading the notice or deciding you disagree with the amount.

Taxpayers who think they've missed their appeal window because they disagree with an assessed amount, not the underlying liability

Missing the 90-day appeal deadline doesn't necessarily leave you stuck with an inflated, IRS-estimated number forever. If the assessment was built on the "best information available" rather than an actual return, filing the real return for that year is a separate route to get the amount corrected -- it isn't an "appeal" under § 58.1-1821 and isn't subject to that same 90-day bar.

Filing delinquent Virginia returns years after the original due date

There's no indication in this ruling that filing years-late returns triggers any additional penalty beyond what already applies to a late filing -- but the sooner you address a non-filing situation once you learn of it, the sooner you can get the assessed amount corrected to reflect your real liability instead of the IRS-information-based estimate.

Common questions

Q: I disagree with how much Virginia says I owe, but I missed the 90-day appeal deadline -- am I stuck?
A: If your assessment was based on the "best information available" (for example, IRS-supplied data) rather than an actual return you filed, you can still file the real return for that year; the Department will use it to adjust the assessment. That's different from, and not barred by, the missed 90-day administrative appeal deadline.

Q: When does the 90-day appeal clock start running?
A: From the date of the assessment itself, not from when you receive a later notice, a copy of the bill, or otherwise become aware of it.

Q: How does Virginia find out about income I never reported on a Virginia return?
A: Federal law (26 U.S.C. § 6103(d)) authorizes the IRS to share taxpayer information with state tax agencies, which the Department can use to determine whether a resident had a Virginia filing obligation and, if so, assess tax using the best information it has available.

Citations and references

• Va. Code § 58.1-1821 (90 days from the assessment date to apply for correction to the Tax Commissioner)
• 23 VAC 10-20-165 B 1 (the Department strictly enforces the 90-day administrative appeal deadline)
• Va. Code § 58.1-341 (a Virginia resident required to file a federal return must also file a Virginia return, unless exempt; also required if Virginia AGI exceeds the filing threshold)
• 26 U.S.C. § 6103(d) (authorizes IRS disclosure of taxpayer information to state tax agencies)
• Va. Code § 58.1-205 (a Department tax assessment is deemed prima facie correct)
• Va. Code § 58.1-111 (assessment based on the best information available to the Department)

Subject

Administration : Appeal - 90 Day Period of Limitations to File Return - Requirement to file - Frivolous Claim To Evade Tax

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-125

Original ruling text

August 3, 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, 2013, through 2015.

FACTS

The Taxpayer, a Virginia resident, filed federal individual income tax returns for the 2013, 2014, and 2015 taxable years, but failed to file Virginia individual income tax returns for those years. As a result, the Department issued assessments dated February 23, 2017, May 21, 2018, and May 31, 2018, respectively. The assessment amounts were based on information provided to the Department by the Internal Revenue Service (IRS). The Taxpayer appealed, contending that the amount of tax assessed should have been lower based on his income.

DETERMINATION

Statute of Limitations

Virginia Code § 58.1-1821 states that “[a]ny person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of such assessment, apply for relief to the Tax Commissioner. . . ”. Title 23 of the Virginia Administrative Code (VAC) 10-20-165 B 1 provides that “the Department strictly enforces the 90-day limitations period for filing a timely administrative appeal. A taxpayer must file a complete appeal within 90 calendar days after the date of assessment.”

In this instance, the assessments issued to the Taxpayer were dated February 23, 2017, May 21, 2018, and May 31, 2018, respectively. Based on the provisions of Virginia Code § 58.1-1821 and Title 23 VAC 10-20-165, the Taxpayer’s complete appeal must have been filed by May 24, 2017, for the first assessment, August 19, 2018, for the second assessment, and August 29, 2018, for the final assessment. The Taxpayer filed his appeal well after the 90-day period for any of the assessments at issue. Accordingly, the Taxpayer’s application for correction is barred by the statute of limitations.

Imposition of Tax

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 Virginia Code § 58.1-321. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia individual income tax return. When a resident does not file a proper Virginia return, Internal Revenue Code (IRC) § 6103(d) authorizes the Department to obtain information from the IRS that will enable the Department to determine the resident’s tax liability. The assessments were based on information provided by the IRS indicating that the Taxpayer had filed federal income tax returns for the taxable years in question, and had sufficient income to meet the filing threshold.

Virginia Code § 58.1-205 states that “[a]ny 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 that the assessment is in error. The assessments at issue were based upon the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayer, however, may have information that better represents his Virginia income tax liability of the taxable years at issue. Therefore, he should file Virginia income tax returns for the 2013, 2014, and 2015 taxable years. The 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: *. The returns will be reviewed and processed, and the assessments will be adjusted as warranted. If the returns are not received in the allotted time, the assessments will be adjusted based on the best information available.

The Code of Virginia sections and regulations cited are available on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department’s website. If you have any questions about this determination, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4121.Y