The IRS has determined my federal tax debt is currently uncollectible -- doesn't Virginia's conformity to federal law mean the Department has to stop collecting on my old Virginia assessments too?

Plain-English summary

The Department had issued individual income tax assessments to a taxpayer for the taxable years ended 1999 through 2009, and continued collection actions over time as balances remained unpaid. In July 2023, the taxpayer filed an "Application for Relief from Collection Actions," arguing that because the IRS had determined his federal tax debt was currently uncollectible, and Virginia conforms to federal law, the Department was required to honor that determination and stop collecting on the Virginia assessments too.

Far too late as an appeal of the assessments themselves. Virginia requires an application for correction within 90 days of the date of assessment (Va. Code § 58.1-1821; 23 VAC 10-20-165 B 1), strictly enforced. The taxpayer's assessments were issued between January 2003 and July 2012, making the latest possible timely filing date October 10, 2012 -- his application, filed July 14, 2023, came over a decade after that window closed. He argued that a "consolidated bill notice" issued in April 2023 restarted the 90-day clock, but the regulation is explicit: a "notice of assessment" is a specific official form with defined fields (date, amount, tax type, period, account/bill number, taxpayer name), and a later statement of balance due -- including a consolidated bill, updated interest, or payment records -- does NOT count as a new notice of assessment. The April 2023 notice didn't restart anything.

An IRS "uncollectible" determination doesn't bind Virginia. The taxpayer separately argued that Virginia's rolling conformity to the Internal Revenue Code (Va. Code § 58.1-301, for taxable years beginning after January 1, 2023) should extend to the IRS's own collectibility determination. The Department explained that conformity means Virginia generally uses the same terminology and computational starting point (federal adjusted gross income) as federal law -- it does NOT mean every IRC provision or federal administrative action is imported into Virginia law. Procedural matters like collecting delinquent taxes are governed by Virginia's OWN statutes in Title 58.1, entirely independent of federal collection procedure (P.D. 94-30, P.D. 95-83, P.D. 21-34). So even though the IRS had flagged the taxpayer's federal debt as currently uncollectible, that had no bearing on whether Virginia's own assessments remained collectible.

Real alternatives, even though the request itself was denied. The Department could not grant the requested hold on collections, and the taxpayer will continue to receive updated bills with accrued interest. But the Department pointed to two genuine options for someone facing financial hardship: an Offer in Compromise based on doubtful collectibility (requiring a financial statement and fee/fee-waiver request), or a payment agreement arranged directly with the Department's Collections Unit.

What this means for you

Anyone whose IRS debt has been marked "currently not collectible"

That federal determination has no automatic effect on a parallel Virginia tax debt -- Virginia's collection procedures are entirely separate from federal collection procedure, even where Virginia otherwise conforms to federal tax computation concepts.

Anyone tracking their appeal deadline after receiving a later "consolidated bill" or updated balance notice

A subsequent bill, balance statement, or updated-interest notice does NOT restart your 90-day window to appeal the underlying assessment -- only the original notice of assessment (a specific official form) starts that clock, and Virginia strictly enforces the deadline with no apparent flexibility for a decade-long gap.

Anyone facing old Virginia tax debt they genuinely cannot pay

If the underlying assessment itself is now unappealable, consider an Offer in Compromise based on doubtful collectibility, or a negotiated payment agreement with the Department's Collections Unit, rather than seeking to have the debt declared uncollectible by analogy to an IRS determination.

Common questions

Q: The IRS has determined my federal tax debt is currently uncollectible -- does that mean Virginia has to stop trying to collect its own assessment against me?
A: No. Virginia's collection procedures are governed by its own statutes, independent of federal collection determinations, even where Virginia otherwise conforms to federal tax concepts.

Q: I received a "consolidated bill notice" restating my old balance -- does that give me a fresh 90 days to appeal the original assessment?
A: No. Only the original notice of assessment (a specific official form with defined required fields) starts the 90-day clock; a later balance statement, consolidated bill, or updated-interest notice does not.

Q: I can't afford to pay old Virginia tax assessments -- what are my actual options if an appeal is now too late?
A: Consider an Offer in Compromise based on doubtful collectibility (requires a financial statement and a fee or fee-waiver request) or a payment agreement with the Department's Collections Unit.

Citations and references

Statutes:

• Va. Code § 58.1-1821 -- 90-day deadline to apply for correction from the date of assessment
• Va. Code § 58.1-301 -- Virginia income tax terminology conforms to the Internal Revenue Code unless a different meaning is clearly required; does not extend to procedural collection matters

Prior rulings the Department relied on (described here, not linked): P.D. 94-30 (3/4/1994), P.D. 95-83 (4/19/1995), and P.D. 21-34 (3/9/2021) -- Virginia's own collection procedures for delinquent taxes are not displaced by federal (IRC) conformity.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-32

Original ruling text

March 21, 2024

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you seek a hold on collection activity with respect to the individual income tax assessments issued to * (the “Taxpayer”) for the taxable years ended December 31, 1999, through December 31, 2009. I apologize for the delay in responding to your letter.

FACTS

The Department issued assessments to the Taxpayer for unpaid taxes, penalties, and interest for each of the taxable years at issue. The Department has initiated a number of collection actions over time, but balances remain due, and the Department continues to take collection actions. The Taxpayer has now filed an “Application for Relief from Collections Actions.” The Taxpayer contends that because the Internal Revenue Service (IRS) has determined that his federal income tax debt is uncollectible, the Department must honor that determination and cease its own collection actions.

DETERMINATION

Filing Deadline

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 “[t]he 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 were issued to the Taxpayer between January 9, 2003, and July 12, 2012. Based on the provisions of Virginia Code § 58.1-1821 and Title 23 VAC 10-20-165, the latest the Taxpayer could have timely filed an application for correction for any of the taxable years at issue was October 10, 2012. The Taxpayer filed this application on July 14, 2023, well after the 90-day limitations period.

The Taxpayer asserts that the issuance of a consolidated bill notice on April 24, 2023, started the 90-day period for filing an application for correction under Virginia Code § 58.1-1821. “Date of assessment” is defined, in part, as the date stated on the “notice of assessment.” See Title 23 VAC 10-20-165 A.

Title 23 VAC 10-20-165 A further defines “notice of assessment” as:

The department’s official form labeled “Notice of Assessment” that contains written information that sets out the date of the assessment, amount of assessment, the tax type, taxable period, account number, bill number and name of the taxpayer. A subsequent statement of balance due the department does not constitute a new notice of assessment. Such subsequent statements include reports of payments applied to assessments, updated bills reflecting additional accrued interest, or other changes to an assessment. [Emphasis added.]

Under this regulation, the consolidated bill notice dated April 24, 2023, does not constitute a notice of assessment that would extend the Taxpayer’s time for filing an application for correction of the original assessments. Accordingly, the Taxpayer’s application under Virginia Code § 58.1-1821 is barred by the statute of limitations.

Collectibility of Assessment

The Taxpayer states that the IRS has determined that its own assessments issued to the Taxpayer are currently not collectible. The Taxpayer contends that effective for taxable years beginning after January 1, 2023, Virginia Code § 58.1-301 provides for rolling conformity to the Internal Revenue Code (IRC), which would include an IRS determination on collectibility.

Virginia Code § 58.1-301 provides, with certain exceptions, that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the 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 with federal adjusted gross income (FAGI).

Conformity, however, does not mean that every provision of the IRC is imported directly into Virginia law. Procedural matters such as the collection of unpaid taxes are not in conformity with the IRC because Title 58.1 of the Code of Virginia has specific statutes setting forth the collection procedures for delinquent taxes administered by the Department. See, e.g., Public Document (P.D.) 94-30 (3/4/1994), P.D. 95-83 (4/19/1995), and P.D. 21-34 (3/9/2021). Thus, although the IRS has determined that the Taxpayer’s federal income tax assessments are currently not collectible, the collectibility of assessments issued by the Commonwealth remain due and payable.

CONCLUSION

For the reasons discussed above, the Department cannot grant the Taxpayer’s request that it cease collection activity with respect to the assessments at issue. The Taxpayer will receive updated bills that will include accrued interest to date. The Taxpayer should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and further collection actions.

The Taxpayer indicated that the assessments will create a financial hardship. If the assessments create a financial hardship, the Taxpayer may pursue an offer in compromise based on doubtful collectibility. To begin that process, the Taxpayer should complete the enclosed Individual Offer in Compromise: Doubtful Collectibility form and Financial Statement for Individuals and include the required fee or fee waiver request. The completed forms and statement will allow the Department to review and analyze the Taxpayer’s financial situation. Upon completion of that review, a response will be issued to the Taxpayer. The Taxpayer also has the option to request a payment agreement with the Department’s Collections Unit. The Collections Unit may be contacted at (804) *.

The Code of Virginia sections, regulations and public documents 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 (804) ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4637.X

Related Documents

94-30

95-83

11-30

21-34