If the IRS audits my federal return and raises my income, can I fight the resulting Virginia assessment by arguing the IRS got it wrong?

Plain-English summary

The IRS examined this taxpayer's 2020 federal return and increased his federal adjusted gross income (FAGI). Because Virginia's individual income tax starts from FAGI and conforms to the Internal Revenue Code (§ 58.1-301), that federal increase flowed straight through to a higher Virginia tax, and the Department issued an assessment. The taxpayer appealed, saying the IRS had accepted an amended return that reversed the audit change.

The Tax Commissioner upheld the assessment. When the IRS has audited a taxpayer's federal income, the Department does not look behind the IRS's final determination — it follows the federal result. The Department pulled the taxpayer's IRS account transcript in July 2025 and found that although the IRS had received his amended return, it had made no changes to its prior audit. In other words, there was no actual federal change for Virginia to follow; the audit figures still stood. With nothing to abate against, the Department left the assessment (already paid in full) in place.

The Commissioner also pointed to the procedural backdrop: a taxpayer must report a federal change within one year by filing an amended Virginia return (§ 58.1-311), and if that is not done the Department may assess at any time (§ 58.1-312 A 3). The Department is authorized to get federal return information directly from the IRS (IRC § 6103(d)), which is how it learned of the adjustment. Finally, the Commissioner left the door open: if the IRS later revises its 2020 audit, the taxpayer may file an amended Virginia return to correct the liability (§ 58.1-311, § 58.1-1823).

What this means for you

Individuals who were audited by the IRS

If an IRS audit raises your federal income, expect a matching Virginia bill — and know that Virginia will not re-litigate the IRS's conclusions. Arguing to the Department that "the IRS was wrong" or "I filed an amended return" gets you nowhere unless the IRS itself has actually changed its determination. The place to fight the numbers is the IRS. Once (and if) the IRS revises its result, you bring that revised federal outcome back to Virginia with an amended return.

If you filed an amended federal return to undo an audit

Filing an amended return is not the same as the IRS accepting it. Here the IRS had the amended return on file but had not acted on it, so as far as both the IRS and Virginia were concerned the audit numbers were final. Keep proof of any completed federal change (a transcript showing the IRS actually adjusted the account), because that — not the mere act of filing — is what lets Virginia reduce the assessment.

Accountants and tax preparers

Two clocks matter. Your client must report a final federal change to Virginia within one year by amended return (§ 58.1-311); miss that and the Department can assess the resulting tax at any time (§ 58.1-312 A 3) — there is no statute of limitations shielding an unreported federal change. Conversely, when the federal change reduces Virginia tax, the amended-return/refund window of § 58.1-1823 is what preserves the refund. Pull the IRS account transcript to confirm what the IRS has actually done before advising a client to appeal a conformity assessment.

Common questions

Q: The IRS audited me and Virginia sent a bill. Can I dispute the numbers with Virginia?
A: Not the underlying federal figures. Where the IRS has audited your federal taxable income, Virginia follows that final federal determination and will not look behind it. To change the numbers you must get the IRS to change its audit; then you bring the revised federal result to Virginia.

Q: I filed an amended federal return. Doesn't that fix my Virginia assessment?
A: Only if the IRS has actually acted on it. In this ruling the IRS had received the amended return but made no changes to its audit, so there was no federal change for Virginia to follow and the assessment stood.

Q: What if the IRS later agrees with me and lowers my federal income?
A: Then you can file an amended Virginia return to correct your Virginia liability for that year (§ 58.1-311, § 58.1-1823). The Commissioner expressly noted this option here.

Q: How did Virginia even know about my IRS audit?
A: Federal law (IRC § 6103(d)) lets the Department obtain federal return and audit information from the IRS to determine state tax liability. Virginia routinely receives IRS adjustment data.

Citations and references

Statutes:

• Va. Code § 58.1-301 — Virginia conforms to the Internal Revenue Code; Virginia taxable income begins with federal adjusted gross income (FAGI)
• Va. Code § 58.1-311 — a taxpayer must report a federal change or correction within one year by filing an amended Virginia return
• Va. Code § 58.1-312 A 3 — if no amended return is filed to report a federal change, the Department may assess the tax at any time
• Va. Code § 58.1-1823 — the period within which an amended return may be filed, including after a final federal determination
• IRC § 6103(d) — authorizes the Department to obtain federal return information from the IRS

Prior public documents the Commissioner relied on (described here, not linked): P.D. 11-107 (6/14/2011) and P.D. 24-52 (5/22/2024), both holding that the Department does not look behind the IRS's final audit determination.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-103

Original ruling text

September 5, 2025

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 assessment issued to you (the “Taxpayer”) for the taxable year ended December 31, 2020.

FACTS

The Internal Revenue Service (IRS) notified the Department that it had adjusted the Taxpayer’s 2020 federal income tax account. The Department had previously received an amended Virginia income tax return purportedly reporting the federal change. That return, however, did not agree with the IRS account information. As a result, the Department issued an assessment for additional tax due. The Taxpayer filed an application for correction, contending that the IRS accepted his amended return.

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 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 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 Taxpayer’s FAGI was increased due to an IRS examination.

The Taxpayer asserts that he filed an amended return that was accepted by the IRS. Based on an IRS tax account transcript obtained most recently by the Department in July 2025, the IRS has received the Taxpayer’s amended return but has not made any changes to the prior audit. 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. 24-52 (5/22/2024).

Under these circumstances, the Department finds no basis to abate the assessment. According to the Department’s records, the assessment has been paid in full and no further action is required. If the IRS adjusts its audit findings for the 2020 taxable year, the Taxpayer 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 cited are available online at law.lis.virginia.gov. The public documents cited are available at 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 and Legal Affairs, Tax Adjudication and Resolution Division, at (804) or **.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4861.Y

Related Documents

11-107

24-52