Could a nursing assistant keep unreimbursed vehicle-expense deductions without records substantiating the business use?

Subject

Unsubstantiated itemized deductions for unreimbursed employee expenses

Plain-English summary

Virginia upheld the assessments because the taxpayer did not substantiate the vehicle expenses. The taxpayer worked as a nursing assistant and said she used her personal vehicle to travel to different service locations. She claimed the costs as unreimbursed employee expenses for 2007 and 2008.

Virginia began with the federal itemized-deduction rules then in effect. The ruling explained that unreimbursed employee business expenses were miscellaneous itemized deductions subject to the federal threshold, and taxpayers had to keep records sufficient to establish the correct liability.

The Department requested documentation supporting the business use of the vehicle, but the taxpayer did not provide it. Because a Virginia assessment is presumed correct, she carried the burden to prove the assessments wrong. Her unsupported claim did not meet that burden, so the additional tax and interest remained due.

What this means for you

• Keep contemporaneous records showing dates, destinations, business purpose, and vehicle use.
• A job that requires travel does not by itself prove the amount of a deduction.
• Provide requested supporting schedules and records during an audit or appeal.
• This ruling applied the federal miscellaneous-itemized-deduction rules in effect for 2007 and 2008.

Citations and references

• IRC § 67(b); Treas. Reg. § 1.6001-1(a).
• Va. Code §§ 58.1-205, 58.1-219, 58.1-301, 58.1-310, and 58.1-322(D)(1).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-88

Original ruling text

June 2, 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 years ended December 31, 2007 and 2008.

FACTS

Under review, the Department disallowed unsubstantiated itemized deductions for unreimbursed employee expenses and issued an assessment for additional tax and interest for the 2007 and 2008 taxable years. The Taxpayer appeals the assessment, contending she had used her personal vehicle to travel to various locations in order to provide services as a nursing assistant and she is entitled to the deductions claimed.

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).

As a general rule, the Department relies on the accuracy of information and computations reflected on the federal income tax return when reviewing Virginia individual income tax returns. If the information provided on the federal return looks reasonable, there is generally no reason to look behind those computations. However, the Department retains the authority to adjust FAGI where there is clear evidence that the amounts reported on the federal or Virginia income tax return are not consistent with the IRC. See Va. Code § 58.1-219.

Virginia Code § 58.1-322 D 1 allows a taxpayer to deduct from its Virginia adjusted gross income the amount allowed for itemized deductions for federal income tax purposes. Individuals that claim itemized deductions may deduct miscellaneous itemized deductions, as defined under IRC § 67(b), to the extent that they collectively exceed 2% of FAGI. One such miscellaneous itemized deduction is unreimbursed employee business expenses.

Taxpayers must maintain, records sufficient to allow the IRS to determine their correct tax liability. See Treas. Reg. § 1.6001-1(a). Similarly, Va. 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 Department requested information required to substantiate the itemized deductions claimed on the Virginia individual income tax return. The Taxpayer has not provided the requested documentation to support the business use of her motor vehicle during the taxable years at issue.

Pursuant to Va. Code § 58.1-205 any assessment of tax by the Department is deemed prima facie correct. This means that the burden of proof is upon the Taxpayer to establish that the assessment is incorrect. Because the Taxpayer has failed to furnish the information required to substantiate the deductions, the Department's assessments issued to the Taxpayer for the 2007 and 2008 taxable years must be upheld.

An updated bill will be mailed to the Taxpayer shortly. The Taxpayer should remit payment of tax and interest within 30 days to avoid the accrual of additional interest.

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 Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4642782322.D