Could a Virginia nonfiler invalidate an income-tax assessment by challenging the IRS information behind it?

Subject

Taxpayer asserts that the information from the IRS was not a valid

Plain-English summary

Virginia upheld a 2004 individual income-tax assessment based on information obtained from the IRS because the taxpayer did not provide objective evidence that the information was wrong. The taxpayer had filed neither a federal nor a Virginia return, and the Department assessed tax after receiving no adequate response to its request for a return or explanation.

Virginia begins with federal adjusted gross income and generally requires a Virginia resident who must file federally to file a Virginia return as well. The ruling also explained that federal law authorizes the Department to obtain IRS information needed to determine a resident's liability when a proper Virginia return is not filed.

Although the taxpayer claimed insurance-company accounting refund transfers had been reported incorrectly as income, no objective supporting evidence was provided. The Commissioner found no basis to invalidate the assessment.

What this means for you

• A Virginia resident's taxable-income calculation generally begins with federal adjusted gross income.
• Virginia can use information obtained from the IRS to determine a nonfiler's state liability.
• A bare assertion that third-party income reporting is wrong did not overcome this assessment.
• Supply records that objectively identify and correct any allegedly erroneous reported income.

Common questions

Q: Why did Virginia issue the assessment?
A: IRS information indicated 2004 income, no federal or Virginia return was filed, and the taxpayer did not adequately respond to the Department's request.

Q: Was the IRS information a permissible basis for the Department's review?
A: Yes. The ruling cited IRC § 6103(d) as authority for the Department to obtain information needed to determine state liability.

Q: Why did the taxpayer's challenge fail?
A: The taxpayer provided no objective evidence showing that the IRS information was incorrect.

Q: What was the result?
A: The 2004 assessment remained due.

Citations and references

• Va. Code §§ 58.1-301, 58.1-321, 58.1-322, and 58.1-341.
• IRC § 6103(d).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-104

Original ruling text

June 18, 2008

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter concerning the Virginia individual income tax assessment issued to * (the "Taxpayer") for the taxable year ended December 31, 2004.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating the Taxpayer had income for the 2004 taxable year. The Taxpayer did not file a federal or Virginia individual income tax return for that taxable year. A letter was sent requesting the Taxpayer to file the proper Virginia income tax return or provide an explanation concerning why his income was not taxable. When an adequate response was not received, the Department issued an assessment.

The Taxpayer asserts that the information from the IRS was not a valid liability instrument, and the Department's assessment is not supported by any lawful document or debt instrument. As such, the Taxpayer requests that the assessment for the 2004 taxable year be abated.

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 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 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. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia individual income tax return. When a resident does not file a proper Virginia return, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will enable the Department to determine the resident's tax liability.

The Taxpayer contends that he had no income for federal income tax purposes for the 2004 taxable year, but does not deny having income for that taxable year. With respect to income, he claims the unsupported tax allegations result from accounting refund transfers erroneously reported as income by insurance companies. The Taxpayer, however, has provided no objective evidence to show that the information properly obtained by the Department from the IRS is incorrect.

Based on the applicable law cited above and the information presented, there is no basis to invalidate the Department's assessment. Accordingly, the assessment for the 2004 taxable year is correct. Payment of the outstanding assessment, as shown on the enclosed schedule, should be made within 30 days from the date of this letter. Payment should be sent to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *. If payment is not received within the allotted time, additional interest will accrue and collection action will resume on the outstanding balance.

The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Tax Policy Library section of the Department of Taxation's web site. If you have any questions about this determination, please contact * at ***,

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-199814606.E