Can I avoid Virginia income tax by arguing I'm not a U.S. citizen, had no contract to pay tax, or that the IRS has no authority in Virginia?

Plain-English summary

This ruling addresses a taxpayer with a tangled multi-year history: for 2009-2012, the IRS tipped off Virginia that he might owe returns; when he didn't respond to the Department's requests for information, it assessed him for those years. Separately, he filed Virginia resident returns for 2019-2021 reporting a tax liability but didn't pay what he reported, generating assessments for those years too. By the time of this ruling, the 2009 and 2012 assessments were fully paid; various payments had been applied to the others; only the 2021 assessment remained entirely unpaid. The taxpayer appealed everything at once, arguing the assessments should be abated because he wasn't a U.S. citizen, didn't receive Virginia-source income, never contracted to pay Virginia income tax, and that the IRS wasn't authorized to "do business" in Virginia. He also asked for a refund of payments made and an appeal conference.

The Department worked through several DIFFERENT and independently operating statutes of limitations before even reaching the merits. First, the ordinary 90-day appeal deadline (Va. Code § 58.1-1821): the taxpayer's appeal letters came in July and September 2022, which meant every assessment except 2021 was already outside that window. Second, a "protective claim" -- which requires BOTH the claim's filing AND full payment of the assessment within three years of the assessment date -- was also examined for the two years that had been paid in full (2009 and 2012); both deadlines (November 2015 and December 2019, respectively) had long passed by the time the taxpayer filed. Third, the ordinary three-year refund statute of limitations meant only payments applied to the 2019 and 2020 liabilities were even still eligible for refund consideration. Net result: only the 2021 assessment was timely appealed on any theory, and since that assessment was based on the taxpayer's OWN reported (but unpaid) liability -- not a Department-initiated correction -- the ruling treated the case as the taxpayer effectively appealing his own tax return.

On the merits (limited to 2019-2021, and only the issues the taxpayer actually raised), the Department rejected every argument as legally baseless. Virginia's inherent taxing power doesn't derive from -- and isn't limited by -- federal constitutional doctrine the way the taxpayer implied; a state can tax all the income of a resident regardless of source. The taxpayer's citizenship status (an apparent belief he was a "nonresident alien" who could elect out of tax) has NO bearing on whether he's a Virginia RESIDENT subject to Virginia income tax -- those are entirely separate legal questions, and a provision he cited about revoking a federal nonresident-alien election doesn't create a tax exemption in the first place. His "no contract to pay tax" argument was called out by name as meritless (citing three prior rulings that rejected the identical theory), and his claim that the IRS lacks authority to "do business" in Virginia was dismissed as simply erroneous -- the IRS administers federal tax law nationwide as Congress authorized. Because the claims were found to have no basis in fact or law, the Department also denied the requested appeal conference, since Virginia regulations allow denying a conference when an appeal is deemed frivolous.

What this means for you

Anyone appealing multiple tax years with a mixed payment/assessment history

Each tax year can be governed by DIFFERENT and independently running deadlines -- the 90-day appeal window, the 3-year protective-claim window (which requires full payment AND timely filing), and the 3-year refund statute of limitations. A single appeal letter covering several years can succeed for one year and fail for others purely on timing, regardless of the merits.

Taxpayers who file a return reporting a liability but don't pay it

If you're later assessed based on your OWN reported (but unpaid) number, the Department treats your later "appeal" of that assessment as effectively appealing your own return -- meaning you'll need to show a basis for a DIFFERENT liability than what you originally reported, not just object to the assessment generally.

Anyone encountering "sovereign citizen" or tax-protester style arguments

This ruling is a clear, citable rejection of several common tax-protester theories under Virginia law specifically: that citizenship status controls state tax residency, that state taxation requires a personal contractual agreement, and that the IRS lacks authority to operate within a state. All were found to have no basis in law, and raising them can get an appeal conference denied as frivolous.

Common questions

Q: Does my citizenship status affect whether I'm a Virginia resident for income tax purposes?
A: No -- residency and citizenship are separate legal questions. Even someone who believes they qualify as a federal "nonresident alien" is still subject to Virginia income tax if they meet Virginia's own residency definition.

Q: Do I need to have signed a contract agreeing to pay income tax for Virginia to tax me?
A: No -- this "no contract" argument has been repeatedly rejected by the Department as without merit.

Q: What's the difference between the 90-day appeal deadline and the 3-year protective claim deadline?
A: The 90-day deadline (Va. Code § 58.1-1821) applies to appealing an assessment generally. A "protective claim" under Va. Code § 58.1-1824 is a separate mechanism to preserve judicial remedies, but it requires BOTH filing the claim AND paying the assessment in full within three years of the assessment date.

Q: Can the Department deny me an appeal conference?
A: Yes -- Virginia regulations allow denying a conference when the appeal is deemed frivolous or appears aimed at delaying collection rather than raising a genuine dispute.

Citations and references

• Va. Code § 58.1-1821 (90-day deadline to appeal an assessment)
• Va. Code § 58.1-1824 (protective claim; filing and full payment required within 3 years)
• Va. Code § 58.1-499 A, D (refund statute of limitations)
• Va. Code § 58.1-302 (definition of resident)
• Va. Code § 58.1-301 (Virginia conformity to Internal Revenue Code terminology)
• Va. Code § 58.1-341 (resident filing requirement)
• Colonial Pipeline Company v. Commonwealth of Virginia, 206 Va. 517, 145 S.E.2d 227 (1965) (Virginia's inherent taxing power)
• New York ex rel. Cohn, 300 U.S. 308 (1937) (a state may tax all income of a resident)
• P.D. 86-224 (11/3/1986) (protective claim requirements)
• P.D. 14-84 (6/4/2014), P.D. 14-113 (7/18/2014), P.D. 19-21 (3/26/2019) ("no contract to pay tax" argument rejected)
• P.D. 16-11 (2/29/2016) and P.D. 21-59 (5/18/2011) (federal alien status doesn't control Virginia residency)

Subject

Administration: Appeal - Timely Filed Administration: Protective Claim - Statute of Limitations Administration: Refunds Administration: Refunds - Resident Filing Requirements Residency: Actual - Residency Not Impacted By National Origin

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-37

Original ruling text

April 5, 2023

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, 2009 through 2012 and 2019 through 2021. The Taxpayer also requests refunds of any payments that have been applied towards these assessments.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file Virginia individual income tax returns for the 2009, 2010, 2011, and 2012 taxable years. In each case, the Department requested information to verify whether the Taxpayer was subject to Virginia income tax. When no responses were received, the Department issued assessments.

The Taxpayer filed resident Virginia income tax returns for the taxable years ended December 31, 2019 through 2021. The returns reported an income tax liability, but he did not pay the tax due. As such, assessments were issued for these years as well. The assessments issued for the 2009 and 2012 taxable years have been paid in full. Various other payments have been applied to each of the other outstanding assessments, except the assessment for the 2021 taxable year which remains due in full.

The Taxpayer filed an appeal, contending that the assessments should be abated because he was not a United States citizen, did not receive income from Virginia, and did not contract to pay income tax to Virginia, and because the IRS was not authorized to do business in Virginia. In addition, he requests that any payments be refunded and that he be granted an appeal conference.

DETERMINATION

Applicable Statutes of Limitation

The Taxpayer’s history of having assessments issued after failing to file returns and filing returns but not paying the reported tax due raises several different issues with respect to statutes of limitations. Each of these limitations periods will be addressed in turn.

Deadlines for Filing Appeals

Virginia Code § 58.1-1821 states, “Any person assessed with any tax administered by the Department of Taxation may, within 90 days from the date of such assessment, apply for relief to the Tax Commissioner. Such application shall be in the form prescribed by the Department, and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer’s contention.” Pursuant to Virginia Code § 58.1-1821 and Title 23 of the Virginia Administrative Code (VAC) 10-20-165, a complete appeal must be filed with the Department within 90 days from the date of assessment. In addition, Virginia Code § 58.1-1820 provides that assessments made by the Department are deemed to be made when a written notice of assessment is mailed to a taxpayer at his last known address.

The Taxpayer filed an appeal for the taxable years at issue by letters dated July 26, 2022, and September 28, 2022. Except as to the assessment issued for the 2021 taxable year, however, the 90 day filing deadline had passed.

Protective Claim

Virginia Code § 58.1-1824 provides that “[a]ny person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing a claim for refund with the Tax Commissioner. . . within three years of the date such tax was assessed.” Virginia Code § 58.1-1824, therefore, expressly limits the right to file a protective claim to cases in which both the filing of the claim and the payment of the assessment occurred within three years of the assessment. See Public Document (P.D.) 86-224 (11/3/1986). In addition, all assessed taxes, penalties, and accrued interest for the year or years subject to the request must be paid in full before a taxpayer may file a protective claim. See Title 23 VAC 10-20-190 A 1.

The only assessments that have been paid in full are the ones issued for the 2009 and 2012 taxable years. The assessment for the 2009 taxable year was issued on November 7, 2012 and the assessment for the 2012 taxable year was issued on December 14, 2016. To be timely filed, protective claims were required to be filed by November 7, 2015, for the 2009 taxable year and by December 14, 2019, for the 2012 taxable year. The Taxpayer’s appeal letters were filed on July 26, 2022, and September 28, 2022, well after the three year period expired for filing a protective claim.

Statute of Limitations for Requesting a Refund

Virginia Code § 58.1-499 A provides that, in the case of any overpayment of any tax, whether by reason of excessive withholding, overestimating and overpaying estimated tax, or error on the part of the taxpayer, the Department shall order a refund of the overpayment. Virginia Code § 58.1-499 D specifies, however, in pertinent part:

No refund under this section... shall be made... whether on discovery by the Department or on written application of the taxpayer, if such discovery is not made or such written application is not received within three years from the last day prescribed by law for the timely filing of the return. . . [Emphasis added.]

Payments of tax were made by the Taxpayer’s spouse, through offsets, and through collection actions towards assessments for the 2009 through 2012 taxable years and for the 2019 and 2020 taxable years. Only payments of Virginia income tax that were applied to the Taxpayer’s liability for the 2019 and 2020 taxable years are within the three-year limitations period for a refund request.

Conclusion as to Applicable Statutes of Limitations

In accordance with the above analysis, the Taxpayer’s appeal is only timely as to the assessment issued for the 2021 taxable year. In addition, the 2019, 2020, and 2021 taxable years were still within the statute of limitations period to claim a refund. These assessments, however, were based on the Taxpayer’s own reported liability for Virginia income tax, which he did not pay when the returns were filed. The Taxpayer, therefore, is essentially appealing his own tax returns.

Because it does not appear that the Taxpayer has ever filed amended returns for these years to report a different liability than what he reported on his original returns, the Department can only assume that the liability he reported on the original returns was correct. This response, therefore, will only address the validity of the bases upon which the Taxpayer now asserts he had no liability for Virginia income tax for the 2019 through 2021 taxable years. Further, this response will consider only the issues raised by the Taxpayer at this time. Should the Taxpayer attempt to amend his 2019, 2020, or 2021 Virginia income tax return in any way that is beyond the scope of this response, the Department will review any such amendments on a case-by-case basis and issue separate responses accordingly. As to the issues now raised by the Taxpayer, however, this response should be considered a ruling of the Department.

Taxability of Income

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. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia . For individual income tax purposes, Virginia conforms to federal law, in that it starts the computation of Virginia taxable income (VTI) 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 § 58.1-341 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, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will enable the Department to determine the resident’s tax liability.

In addition, the Virginia Supreme Court has held “the power of the State of Virginia to levy taxes is not derived from the Constitution of the United States as interpreted by the Supreme Court. On the contrary, the State has the inherent and unlimited power of taxation unless restrained by its Constitution or the Constitution of the United States.” See Colonial Pipeline Company v. Commonwealth of Virginia , 206 Va. 517, 145 S.E.2d 227 (1965).

Further, in New York ex rel. Cohn , 300 U.S. 308, 312-313, 57 S.Ct. 466, 467 (1937), the United States Supreme Court explained “[t]hat the receipt of income by a resident of the territory of a taxing sovereignty is a taxable event is universally recognized.” Thus, any resident who has Virginia taxable income as determined under Virginia’s statutes is subject to Virginia income tax.

The Taxpayer seems to believe he is a nonresident alien and can elect to not file tax returns under IRC § 6013(g)(4)(A). This subsection permits nonresident aliens and their United States resident spouses to elect to treat the nonresident alien as a United States resident for tax purposes. The specific provision cited by the Taxpayer refers to the revocation of such election, but it does not follow that revoking such an election means that a nonresident alien becomes exempt from taxation. Nonresident aliens are still subject to federal income tax on income effectively connected with the conduct of a trade or business carried on in the United States, in addition to being subject to tax on certain income from sources in the United States. See IRC § 871. In any event, a taxpayer’s status as a resident or nonresident alien for federal income tax purposes has no bearing on the determination whether the individual is subject to Virginia income tax as a Virginia resident. See P.D. 16-11 (2/29/2016) and P.D. 21-59 (5/18/2011).

In this case, the Taxpayer has given no valid factual basis to demonstrate he did not meet the definition of a resident of Virginia under Virginia Code § 58.1-302. As a resident, the Taxpayer was taxable on all of his income regardless of source, to the extent the income was also subject to federal income tax. The Taxpayer’s argument that he had no contractual obligation to pay tax is without merit. See P.D. 14-84 (6/4/2014), P.D. 14-113 (7/18/2014), and P.D. 19-21 (3/26/2019).

Further, the Taxpayer’s assertion that the IRS lacks the authority to conduct business in Virginia is erroneous. The IRS is the federal tax collection agency and administers the IRC as enacted by Congress and authorized to promote compliance and collect revenue throughout the United States.

Appeal Conference

Title 23 VAC 10-20-165 E grants a conference for any taxpayer that timely filed a complete appeal. However, Title 23 VAC 10-20-165 E 4 b provides that the Department will not grant a conference if an administrative appeal is deemed frivolous or for cases in which a taxpayer requests a conference for the purpose of delaying collection action on a valid assessment. As stated above, the Taxpayer’s claims are without merit and, therefore, considered frivolous.

CONCLUSION

With respect to the assessments issued for the 2009 through 2012 taxable years, the Taxpayer has not timely submitted an appeal or claim for refund. These assessments, therefore, are upheld and remain due and payable to the extent they have not already been paid. Further, the Taxpayer’s claims that he was not subject to Virginia income taxation with respect to the 2019 through 2021 taxable years have no basis in fact or law.

Accordingly, updated bills will be issued to the Taxpayer, including accrued interest to date. The Taxpayer should remit payment immediately or collections actions will resume.

The Code of Virginia sections, regulations, 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/4348.B

Related Documents

88-224

14-84

14-113

19-21

16-11

21-59