The IRS adjusted my 2013 return back in 2016, but I never reported it to Virginia because I believe (and am still contesting with the IRS) that their adjustment itself was made after their own deadline had passed -- can Virginia still assess me years later?

Plain-English summary

The IRS adjusted a couple's 2013 federal return in 2016 -- increasing their FAGI and cutting their itemized deductions -- but the couple never filed an amended Virginia return to reflect that change. Years later, when Virginia caught the discrepancy and issued an assessment for the additional tax, the couple appealed, arguing the assessment came too late under the statute of limitations.

The problem for the couple was procedural, not substantive. Virginia's normal rule requires a taxpayer to report a federal change within one year by filing an amended Virginia return; but if the taxpayer never does that, a separate statute (Va. Code § 58.1-312 A 3) lets the Department assess the correct tax "at any time" -- there's no outer deadline once the taxpayer's own reporting obligation goes unmet. The couple's appeal was also vague about which limitations period they meant: the one governing the IRS's own examination, or the one governing Virginia's assessment. The Department pointed out that whether the IRS itself acted within its own deadline is a question of federal law the Department has no authority to decide -- and in any event, the couple's preparer had told Department staff he was disputing the IRS adjustment as untimely and trying to get it corrected, but their own IRS transcript still showed the adjustment standing unchanged. Because Virginia doesn't look behind a still-standing IRS determination, the assessment was upheld (and, as it turned out, had already been paid through a collection action by the time this ruling issued). The Department did note that if the IRS ever does change its findings, the couple could file an amended Virginia return at that point to fix their liability.

What this means for you

Anyone who receives (or expects) an IRS adjustment and hasn't yet told Virginia about it

There is no safety in silence. Failing to file the required amended Virginia return doesn't run out any clock in your favor -- it removes the clock entirely, letting Virginia assess the resulting tax at any time in the future.

Anyone actively disputing an IRS adjustment while a related Virginia assessment is also on the table

Virginia generally treats the IRS's determination as final unless and until the IRS itself actually changes it. Simply telling the Department you're contesting the adjustment with the IRS -- without an actual resolution -- won't pause or prevent a Virginia assessment based on the adjustment as it currently stands.

Anyone whose federal tax dispute eventually resolves in their favor after a Virginia assessment already issued

This ruling confirms the door isn't permanently closed: if the IRS later changes its adjustment, you can still file an amended Virginia return under Va. Code § 58.1-311 and § 58.1-1823 to correct your Virginia liability to match the corrected federal number.

Common questions

Q: Is there a deadline for Virginia to assess me if I never reported a federal income tax change?
A: No -- if you fail to file the required amended Virginia return within one year of a final federal change, Va. Code § 58.1-312 A 3 lets the Department assess the correct additional tax at any time, with no outer limitations period.

Q: If I'm disputing an IRS adjustment as untimely, will Virginia wait for that dispute to resolve before assessing me?
A: Not necessarily. This ruling shows the Department will generally treat the IRS's determination as final as it currently stands (per the taxpayer's own transcript) and doesn't independently decide whether the IRS acted within its own deadline -- that's a matter of federal law outside the Department's authority.

Q: What happens if the IRS eventually corrects an adjustment after I've already paid a Virginia assessment based on it?
A: You can file an amended Virginia return to correct your liability once the IRS actually changes its adjustment, per Va. Code § 58.1-311 and § 58.1-1823.

Citations and references

• Va. Code § 58.1-301 (Virginia conforms to IRC terminology and starts VTI computation with FAGI)
• Va. Code § 58.1-311 (duty to report federal changes within one year via an amended return)
• Va. Code § 58.1-312 A 3 (Department may assess at any time if no amended return is filed for a federal change)
• Va. Code § 58.1-1823 (amended return may be filed to correct liability if the IRS later changes its adjustment)
• IRC § 6103(d) (authorizes the Department to obtain federal return information from the IRS)
• P.D. 11-107 (6/14/2011) (the Department does not look behind a final IRS determination of federal taxable income)

Subject

Administration : Statute of Limitations - IRS Changes Not Reported, Timely Federal Changes, Contesting With IRS

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-6

Original ruling text

January 11, 2022

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 “Taxpayers”) for the taxable year ended December 31, 2013.

FACTS

The Internal Revenue Service (IRS) notified the Department that it adjusted the Taxpayers’ 2013 federal income tax return. Because the Department had no record of having received an amended Virginia income tax return to report the federal change, an assessment was issued for additional tax due. The Taxpayers appeal, contending the assessment was issued outside the statute of limitations period.

DETERMINATION

Virginia Code § 58.1-301 provides, with certain exceptions, that the 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 federal adjusted gross income (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 Chapter 3 of Title 58.1 of the Code of Virginia .

Virginia Code § 58.1-311 requires taxpayers to report a change or correction made to their federal taxable income within one year of the final determination of any such change or correction by filing an amended return with the Department. If a taxpayer fails to file an amended return, Virginia Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time.

In addition, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will assist in determining any additional tax liability. In this case, the information obtained by the Department indicated that the Taxpayers’ FAGI was increased and their itemized deductions were decreased. According to the Taxpayers’ federal transcript, these adjustments were the result of an IRS examination performed in 2016.

In prior communications with the Department’s audit staff, the Taxpayers’ preparer asserted that the IRS adjustments were in error and had been made after the statute of limitations had expired. He also stated he was corresponding with the IRS to have it corrected. The IRS, however, has not made any changes to its adjustment according to the above-referenced transcript. Where the IRS has audited the federal taxable income of a taxpayer, the Department does not look behind the IRS’s final determination. See Public Document 11-107 (6/14/2011).

In their appeal, the Taxpayers repeat the contention that the assessment was issued after the statute of limitations had expired. The Taxpayers’ appeal, however, does not specify whether they mean the statute of limitations that applied to the changes made by the IRS or the statute of limitations that applied to the Department in issuing its assessment. The question whether the IRS made its adjustment and issued its assessment within the applicable statute of limitations is a matter of federal law, which the Department lacks the authority to decide. In addition, because the Taxpayers failed to file an amended Virginia return to report the federal changes, Virginia Code § 58.1-312 allows the Department to assess the additional tax at any time, as stated above.

Under these circumstances, I find no basis to abate the assessment. According to the Department’s records, the assessment has been paid by means of a collection action. Therefore, no further action is required. If the IRS adjusts its audit findings for the 2013 taxable year, the Taxpayers will be permitted to file an amended Virginia return to correct the liability pursuant to Virginia Code § 58.1-311 and Virginia Code § 58.1-1823.

The Code of Virginia sections and public document 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/3952.X

Related Documents

11-107