Could a taxpayer reduce a Virginia assessment without filing the 2007 resident, part-year, or nonresident return needed to calculate liability?

Subject

Taxpayer to file an appropriate Virginia individual income tax return within 30 days

Plain-English summary

Virginia left the estimated assessment in place but gave the taxpayer 30 more days to file the correct return. IRS information showed financial statements sent to a Virginia address. The taxpayer admitted earning some income in Virginia but had not filed a Virginia return or provided enough information to determine how much tax was due or whether he was a resident.

Virginia assessments are presumed correct, and repeated requests for a return or supporting information had gone unanswered. The Commissioner therefore had no basis to reduce the assessment on the existing record.

The appropriate return depended on the facts. A full-year resident would report all income and could claim a qualifying credit for income tax paid to State A. Someone moving into or out of Virginia would file part-year. A nonresident would file on Virginia-source income from property or business, trade, profession, or occupation in Virginia.

If the taxpayer filed the correct return within 30 days, Virginia would adjust the assessment. Otherwise it would stand as issued and collection would resume.

What this means for you

• File the return needed to establish filing status, taxable income, and credits.
• Employer withholding to another state does not by itself determine Virginia liability.
• An estimated assessment remains presumed correct until the taxpayer supplies contrary evidence.
• A procedural remand or filing opportunity is not a final ruling on residency or penalty relief.

Common questions

Did Virginia decide whether the taxpayer was a resident?

No. The information was insufficient, so the ruling explained all three possible filing statuses.

What happened if no return arrived within 30 days?

The assessment would be treated as correct and collection action would resume.

Citations and references

• Va. Code §§ 58.1-321, 58.1-341, 58.1-205, 58.1-332 A, 58.1-303, 58.1-325, and 58.1-302.
• 23 VAC 10-110-40.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-53

Original ruling text

April 6, 2011

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will 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, 2007.

FACTS

The Department received information from the Internal Revenue Service (IRS) that the Taxpayer received federal financial statements at a Virginia address for the 2007 taxable year. The Department requested that the Taxpayer provide documentation to ascertain his domicile. When no response was received, the Department issued an assessment of tax, penalty and interest to the Taxpayer for the 2007 taxable year.

The Taxpayer filed an appeal, contending that the Department over assessed the tax. While he acknowledges that he earned income in Virginia during 2007, he asserts that he did not work in Virginia the entire year and his employer mistakenly withheld * (State A) income tax. The Taxpayer also requests that the penalty be waived.

DETERMINATION

Unless an individual is exempt under Va. Code § 58.1-321, all Virginia residents required to file a federal income tax return or have Virginia taxable income, and any nonresident individuals that have Virginia taxable income are required to file a Virginia income tax return. See Va. Code § 58.1-341.

The Taxpayer concedes that a portion of his income is subject to Virginia income tax, but he has not filed a Virginia income tax return or provided sufficient information to show the proper amount of his tax liability. Further, the information provided does not indicate whether the Taxpayer was a resident of Virginia or not, during the 2007 taxable year.

Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws 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 that the assessment is incorrect.

The Department has made several requests that the Taxpayer either file a Virginia income tax return or provide sufficient information to accurately compute his liability. To date, the Taxpayer has not responded to these requests. Accordingly I find no basis to adjust the Department's assessment issued to the Taxpayer for the 2007 taxable year.

I will, however, grant the Taxpayer one more opportunity to provide the information requested to substantiate his claim. If the Taxpayer will submit the appropriate Virginia income tax return, the assessment will be adjusted.

If the Taxpayer was a resident of Virginia for the taxable year at issue, all of his income would be subject to Virginia tax, even income earned outside Virginia. Virginia Code § 58.1-332 A, however, allows a Virginia resident a credit on the Virginia income tax return for income taxes paid to another state provided the income is either earned or business income. If this is the case, the Taxpayer should file a Virginia individual income tax return as a resident.

If the Taxpayer either moved into or out of Virginia during 2007, he should file a Virginia part-year individual income tax return. Title 23 of the Virginia Administrative Code (VAC) 10-110-40 provides that individuals who are residents of Virginia for only part of a taxable year are taxed as residents for that portion of the year that they reside in Virginia. See Va. Code § 58.1-303.

If the Taxpayer was not a resident of Virginia, he would be required to file a Virginia nonresident individual income tax return. Under Va. Code § 58.1-325, individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. Virginia Code § 58.1-302 limits the term income and deductions from Virginia sources to the items of income gain, loss and deductions attributable to the ownership of property in Virginia or the conduct of a business, trade, profession or occupation in Virginia.

The Taxpayer is requested to file an appropriate Virginia individual income tax return within 30 days from the date of this letter. The tax return and payment of the tax due should be sent to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *. Once the return is filed, the assessment will be adjusted accordingly. If the appropriate return is not received within the time allotted, the assessment will be considered correct as issued and collection action will resume.

The Code of Virginia sections cited 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,

Craig M. Burns

Tax Commissioner

AR/1-4593613223.D