If I don't file an amended Virginia return after the IRS adjusts my federal income, how long does Virginia have to assess me for the difference?

Plain-English summary

A taxpayer timely filed her 2017 through 2019 Virginia resident returns. Later, the IRS audited her federal returns and increased her federal adjusted gross income (FAGI) for each of those years. Because she never filed amended Virginia returns to reflect the IRS's changes, the Department issued assessments for the additional Virginia tax due, matching her Virginia income to the IRS's final numbers (consistent with the Department's longstanding policy of not second-guessing a completed IRS audit). She appealed, arguing the assessments came too late under Virginia's general three-year assessment deadline.

The Tax Commissioner explained that the general three-year limit in Va. Code § 58.1-104 expressly carves out exceptions found elsewhere in the tax code, including Chapter 3 (which governs income tax). Virginia Code § 58.1-311 requires a taxpayer to report any IRS-adjusted federal income by filing an amended Virginia return within one year of the IRS's final determination. When a taxpayer doesn't do that, § 58.1-312 A 3 lets the Department assess the resulting Virginia tax AT ANY TIME -- with no outer time limit at all. Because the taxpayer here never filed the required amended returns reflecting the IRS's changes, the Department had authority to issue the 2017-2019 assessments even though more than three years had passed since the original returns were filed. The Commissioner also noted that if the IRS later revises its own audit findings, the taxpayer would still be able to file amended Virginia returns to correct her liability at that point.

What this means for you

Anyone whose federal return was adjusted by an IRS audit

File an amended Virginia return within one year of the IRS's final determination, even if you disagree with the IRS's findings or think too much time has passed. Skipping that step doesn't run out any clock in your favor -- it does the opposite, by letting Virginia assess you without any time limit at all.

Accountants and tax professionals

Calendar the one-year deadline (from the IRS's final determination, not from the original Virginia filing) to amend a Virginia return whenever a client's federal audit results in a change to FAGI. Missing that deadline exposes the client to assessment at any point in the future, unlike most Virginia tax issues, which are subject to the normal three-year limit.

Taxpayers who think Virginia's 3-year assessment deadline protects them from old IRS adjustments

It generally does, but not here -- the three-year rule in § 58.1-104 has built-in exceptions for income tax situations governed by Chapter 3, and unreported IRS adjustments are one of them. Don't assume the passage of three years bars a Virginia assessment tied to a federal change you never reported.

Common questions

Q: How long does Virginia have to assess me for a change the IRS made to my federal income, if I never told Virginia about it?
A: There's no time limit -- Va. Code § 58.1-312 A 3 lets the Department assess at any time when a taxpayer fails to file the amended return required by § 58.1-311 after an IRS adjustment.

Q: How long do I have to file an amended Virginia return after the IRS changes my federal income?
A: One year from the date the IRS's adjustment becomes final, per Va. Code § 58.1-311.

Q: Does Virginia independently re-examine the IRS's audit findings before assessing me?
A: No -- the Department has a longstanding policy of not looking behind a final IRS determination, and simply adjusts the Virginia return to match the IRS's final numbers.

Q: What if the IRS later changes its audit findings again?
A: The taxpayer may still file an amended Virginia return at that point to correct the liability, per Va. Code §§ 58.1-311 and 58.1-1823.

Citations and references

• Va. Code § 58.1-104 (general 3-year assessment statute of limitations, with exceptions)
• Va. Code § 58.1-311 (duty to report federal changes within one year)
• Va. Code § 58.1-312 A 3 (unlimited assessment period for unreported federal changes)
• Va. Code § 58.1-1823 (amended returns)
• P.D. 11-107 (6/14/2011) and P.D. 17-143 (8/23/2017) (Department's policy of not looking behind a final IRS determination)
• P.D. 88-307 (11/7/1988), P.D. 11-105 (6/10/2011), and P.D. 17-66 (5/10/2017) (unlimited assessment authority for unreported federal changes)

Subject

Administration: Assessment - Federal Information Statute of Limitations

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-44

Original ruling text

April 19, 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 ending December 31, 2017, through 2019.

FACTS

The Taxpayer timely filed her 2017 through 2019 Virginia resident individual income tax returns. Subsequently, the Department received information from the Internal Revenue Service (IRS) indicating the Taxpayer’s federal adjusted gross income (FAGI) was adjusted for each year as a result of an audit. Because the Taxpayer had not filed amended Virginia returns to report the federal changes, assessments were issued for additional tax due. The Taxpayer filed an appeal, contending the assessments were issued after the statute of limitations had expired.

DETERMINAITON

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 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 any individual to report a change or correction in federal taxable income within one year of the final determination of such change or correction by filing an amended return with the Department. If the 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.

The information received from the IRS indicates that it made a number of adjustments that affected the Taxpayer’s income and deductions, and ultimately resulted in an increase to the Taxpayer’s FAGI for the taxable years at issue. The Department has a longstanding policy that, 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 (P.D.) 11-107 (6/14/2011) and P.D. 17-143 (8/23/2017). In this case, the Department adjusted the Taxpayer’s FAGI to match the results of the IRS audit.

The Taxpayer contends that the assessments were issued after the statute of limitations period set by Virginia Code § 58.1-104 had expired. Generally, pursuant to Virginia Code § 58.1-104, the Department has authority to issue an assessment within three years of the due date of a timely filed return. This statute, however, expressly provides for exceptions under Chapter 3 ( Virginia Code § 58.1-300 et. seq.) and Chapter 6 ( Virginia Code § 58.1-600 et. seq.). Chapter 3 of the Code of Virginia governs income tax. As indicated above, when an individual fails to report changes made by the IRS as required by Virginia Code § 58.1-311, Virginia Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time, even outside the three-year period under Virginia Code § 58.1-104. See P.D. 88-307 (11/7/1988), P.D. 11-105 (6/10/2011), and P.D. 17-66 (5/10/2017). As such, the Department has the authority to issue the assessments for the 2017 through 2019 taxable years.

The Taxpayer will receive updated bills with accrued interest to date. The bills should be paid within 30 days of the bill date to avoid the accrual of additional interest. If the IRS later adjusts its audit findings for the taxable years at issue, the Taxpayer will be permitted to file amended returns to correct her liability pursuant to Virginia Code § 58.1-311 and Virginia Code § 58.1-1823.

The Code of Virginia sections and public documents cited are available on-line 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/4222.B

Related Documents

88-307

11-105

11-107

17-66

17-143