Did additional information overturn Virginia assessments when the taxpayer spent over 200 days in Virginia and still lacked support for claimed losses?

Subject

Proof not provided to substantiate that taxpayer was not domiciled in Virginia

Plain-English summary

Virginia upheld the 2000-2003 assessments because the taxpayer's additional information did not disprove actual residency for 2000-2001 or substantiate claimed net operating loss deductions for 2002-2003. The letter was the Department's final determination.

The taxpayer said he spent Monday through Thursday nights in Virginia and fewer than 183 nights there. Virginia assumed a Commonwealth employee normally worked at the Virginia office five days a week absent contrary evidence. After accounting for claimed travel and vacation, the Department estimated more than 200 Virginia days in each of 2000 and 2001, making him an actual resident under its analysis.

For 2002 and 2003, the late-filed returns claimed partnership net operating loss carryforwards. The taxpayer provided neither partnership returns verifying the loss nor agreements showing a right to carry it forward after the partnership was sold. Multiple Department requests had not produced the required support.

What this means for you

• Track days of presence with calendars, travel records, lodging, and work-location evidence.
• Counting only nights may not establish the Department's day-based residency analysis.
• Preserve source partnership returns and transaction documents supporting loss carryforwards.
• An assessment remains presumed correct when the taxpayer does not supply requested substantiation.

Common questions

Did Virginia need to decide domicile for 2000-2001? It found actual residency based on days present, which independently required resident returns.

Why were the 2002-2003 losses denied? The taxpayer did not provide records verifying the loss or entitlement to carry it forward.

Was another reconsideration available from the Department? The letter states it was the final determination.

Citations and references

• 23 VAC 10-110-250.
• Va. Code § 58.1-310 and § 58.1-205.
• P.D. 06-82 (August 24, 2006).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-136

Original ruling text

September 4, 2007

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you request a reconsideration of the Department's determination dated August 24, 2006, issued to * (the "Taxpayer") for the taxable years ended December 31, 2000 through 2003.

FACTS

The Department obtained information indicating that the Taxpayer received taxable wages from employment in Virginia for the 2000 and 2001 taxable years. The Department's records indicated that the Taxpayer had not filed a Virginia individual income tax return for those taxable years. Assessments were issued after the Taxpayer failed to show that the information provided was incorrect.

During the Department's examination of the 2000 and 2001 taxable years, the Taxpayer filed 2002 and 2003 Virginia income tax returns. Assessments for those taxable years were issued after the Taxpayer failed to provide documentation for items of income and deductions.

On appeal, the Tax Commissioner upheld the assessments but permitted the Taxpayer a final opportunity to furnish the information necessary to support his position. See Public Document (P.D.) 06-82 (8/24/2006). The Taxpayer has provided additional information and requests that the Department reconsider the determination issued in P.D. 06-82.

DETERMINATION

Residency

In P.D. 06-82, the Taxpayer was granted an additional 30 days to provide documentation to substantiate residency in * (State A). While some additional information was provided with its redetermination request, the Taxpayer has not provided all the information necessary to substantiate his position that he was domiciled in State A rather than in Virginia during the 2000 and 2001 taxable years, or that he was not a Virginia resident.

The Taxpayer asserts he did not maintain a residence in Virginia, he spent less than 183 nights in Virginia during the 2000 and 2001 taxable years, and he was not required to file a Virginia individual income tax return under the provisions of Title 23 of the Virginia Administrative (VAC) 10-110-250.

The Taxpayer states that he spent Monday through Thursday nights in Virginia. The Taxpayer was employed by the Commonwealth of Virginia. Typically, employees of the Commonwealth work at their home office Monday through Friday. Absent evidence to the contrary, the Department must assume that the Taxpayer was working at his office in Virginia five days a week.

Using the Taxpayer's estimate of time spent outside Virginia for vacations and work-related travel and training, it appears that the Taxpayer was in Virginia in excess of 200 days during the 2000 and 2001 taxable years. Based on this finding, the Taxpayer was required to file Virginia income tax returns to reflect his status as an actual resident of Virginia for the 2000 and 2001 taxable years.

Information Requests

For the 2002 and 2003 taxable years, the Taxpayer filed Virginia income tax returns in 2005 after being contacted by the Department. The returns reflect a net operating loss deduction (NOLD) carried forward from a partnership. According to the Taxpayer, the net operating loss (NOL) occurred in 1998 and the partnership was sold in 1999. Other than the name of the partnership, the Taxpayer provided no partnership returns to verify the NOLD or agreements with the purchaser entitling the Taxpayer to carry the NOLD forward.

Virginia Code § 58.1-310 provides:

Whenever in the opinion of the Department it is necessary to examine the federal income returns or any copy thereof of any individual, estate, trust, partnership or corporation in order to properly audit such returns, the Department or the commissioner of the revenue shall have the right to require such taxpayer to provide such return or a copy thereof and all statements, inventories, and schedules in support thereof.

In this case, the Taxpayer filed delinquent Virginia individual income tax returns for the 2002 and 2003 taxable years late. By letters dated July 25, 2005, April 21, 2006, and August 25, 2006, the Department requested the Taxpayer to provide information to substantiate amounts reported on his Virginia income tax returns. The Taxpayer failed to furnish such information.

Virginia Code § 58.1-205 states that in any proceeding relating to the interpretation of the tax laws of the Commonwealth of Virginia, an "assessment of a tax by the Department shall be deemed prima facie correct." As such, the burden of proof is on the Taxpayer to show an assessment is erroneous. Inasmuch as the Taxpayer has not provided the requested information, the assessments for the 2002 and 2003 taxable years are correct.

CONCLUSION

The Department has carefully reviewed the Taxpayer's request for reconsideration. Although I recognize your continuing disagreement with the validity of the assessments at issue, this letter and the determination letter of August 24, 2006, clearly explain the Department's position. For the reasons outlined above, and because the Taxpayer has not provided documentation supporting his position, the assessments are correct. This letter constitutes the Department's final determination on this matter.

Revised bills, with accrued interest, will be mailed to the Taxpayer shortly. No additional interest will accrue provided the outstanding assessments are paid within 30 days from the date of the revised bills. The Taxpayer should remit his payment to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attn: *. If you have any questions concerning payment of the assessments, you may contact at **.

The Code of Virginia sections cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, you may contact * in the Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-993276530E