Could a Virginia resident remove IRS-reported trucking income by stating that another person owned the business?

Subject

Failed to file a timely individual income tax return; Some income not reported

Plain-English summary

Virginia upheld the assessment because the taxpayer did not prove that IRS-reported trucking-business income belonged to someone else. She had failed to file a timely 2003 Virginia return, and the Department used federal information to issue the assessment.

The taxpayer later filed a return reporting only part of the income. She said another individual owned and operated the trucking business and that her involvement had ended in 2001.

Virginia started resident taxable income with federal adjusted gross income and treated the assessment as correct unless the taxpayer proved otherwise. The ruling found no evidence sufficient to show that the IRS attribution or assessment was incorrect.

What this means for you

• Respond to federal information mismatches with source documents, corrected federal records, ownership records, or other substantiation.
• A statement that income belongs to another person may not overcome the assessment by itself.
• Failing to file can cause Virginia to determine liability from IRS information.

Common questions

Did the taxpayer say she owned the trucking business in 2003? No. She said another person owned it and her involvement ended in 2001.

Why did she still lose? She did not prove that the federal information or Virginia assessment was wrong.

Citations and references

• Va. Code §§ 58.1-301, 58.1-322, 58.1-321, 58.1-341, and 58.1-205.
• I.R.C. § 6103(d).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-10

Original ruling text

January 11, 2008

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This is in reply to your letter in which you seek correction of the individual income tax assessment issued to * (the "Taxpayer") for the taxable year ended December 31, 2003.

FACTS

The Taxpayer is a Virginia resident who failed to file a timely individual income tax return for the 2003 taxable year. The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer had income for the 2003 taxable year and issued an assessment.

The Taxpayer subsequently filed an individual income tax return that reported only a portion of the income identified through the IRS. The Taxpayer contends that the income not reported was attributable to a trucking business owned and operated by another individual (Taxpayer B). The Taxpayer states that her involvement in Taxpayer B's business ended in 2001. The Taxpayer requests abatement of the portion of the 2003 taxable year assessment related to income from the trucking business.

DETERMINATION

Virginia Code § 58.1-301 provides that 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 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 Va. Code § 58.1-322.

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 Va. Code § 58.1-321. When a resident does not file a proper Virginia return, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will help in determining the resident's tax liability.

Subsequent to being contacted by the Department, the Taxpayer filed a Virginia individual income tax return for the 2003 taxable year, the Taxpayer contends that a portion of the income, attributable to her by the IRS, resulted from a business owned and operated by Taxpayer B in 2003. She did have a personal and business relationship with Taxpayer B at one time, but asserts that she has had no involvement in the business affairs since 2001.

Virginia Code § 58.1-205 provides that any assessment of a tax by the Department shall be deemed prima facie correct. Inasmuch as the Taxpayer has not been able to show that the assessment issued by the Department or the information provided by the IRS is incorrect, I am unable to find that the income on which the assessment is based is incorrect.

Payment of the outstanding assessment for the 2003 taxable year, as shown on the enclosed schedule, should be sent to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, Post Office Box 1880, Richmond, Virginia 23218-1880, Attention: *. No additional interest will accrue provided the outstanding balance is paid within 30 days from the date of this letter.

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 * at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1406803204E