Could taxpayers challenge Virginia assessments more than 90 days after they were issued while seeking IRS reconsideration?

Plain-English summary

Virginia rejected the appeal because it was filed after the 90-day administrative deadline. The Department issued the assessments on November 9, 2010, making February 7, 2011 the deadline. The taxpayers did not appeal until June 27, 2011.

The assessments followed an IRS audit that increased federal adjusted gross income for 2005 through 2007. The taxpayers did not file amended Virginia returns reporting those changes. Va. Code §§ 58.1-311 and 58.1-312(A)(3) required reporting a final federal change and allowed Virginia to assess at any time when the amended return was not filed.

Virginia would not look behind the IRS's final figures merely because the taxpayers were pursuing federal reconsideration. If the IRS later changed its findings, however, the taxpayers could file amended Virginia returns under the cited correction provisions.

What this means for you

• A Virginia administrative appeal must fully state its grounds and relevant facts within 90 days of the assessment.
• Seeking IRS reconsideration did not keep the Virginia appeal period open.
• A later IRS revision can support amended Virginia returns for the affected years.
• Interest continued to accrue until payment.

Common questions

Q: Did the Commissioner reach the merits of the late appeal?
A: No. The ruling said the missed 90-day deadline barred the application for correction.

Q: Could the taxpayers obtain a correction if the IRS changed its audit?
A: Yes. The ruling said they could then file amended Virginia returns for the changed years.

Citations and references

• Va. Code §§ 58.1-311, 58.1-312(A)(3), 58.1-1821, and 58.1-1823(A)(ii).
• Virginia Public Document 11-107 (June 14, 2011).

Subject

Failure to file a complete administrative appeal within 90 days.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-3

Original ruling text

January 19, 2012

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of individual income tax assessments issued * (the "Taxpayers") for the taxable years ended December 31, 2005 through 2007.

FACTS

The Taxpayers were audited by the Internal Revenue Service (IRS) for the 2005 through 2007 taxable years. As a result of the audit, the Taxpayers' federal adjusted gross income (FAGI) was increased. The Taxpayers failed to file amended Virginia income tax returns reflecting the IRS adjustments.

The IRS notified the Department of the changes in the Taxpayers' FAGI, and the Department issued an assessment for additional tax and interest. The Taxpayers appeal the assessment, contending they are pursuing reconsideration from the IRS.

DETERMINATION

Timely Filed Appeal

Virginia Code § 58.1-1821 states, "Any person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of such assessment, apply for relief to the Tax Commissioner. Such application shall be in the form prescribed by the Department and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer's contention."

The Department issued the assessments to the Taxpayers on November 9, 2010. The Taxpayers appealed the assessment on June 27, 2011. Because the Taxpayer failed to file a complete administrative appeal within 90 days from the date of the assessment (by February 7, 2011), the Taxpayer is now barred from filing an application for correction of the assessments and there is no basis for relief. The Taxpayer will receive an updated bill with interest accrued to date. The bill should be paid within 30 days of the bill date to avoid the accrual of additional interest.

IRS Adjustments

Virginia Code § 58.1-311 requires any individual to report a change or correction in federal taxable income (FAGI) within one year of the final determination of such change or correction by filing an amended return with the Department. If the taxpayer fails to file an amended return, Va. Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time.

In this case, the Taxpayers failed to file amended Virginia individual income tax returns as required by Va. Code § 58.1-311. The Department issued assessments based on the final figures computed by the IRS, as authorized under Va. Code § 58.1-312.

The Taxpayers state they are appealing the notice of deficiency issued by the IRS on January 9, 2009. Where the IRS has audited the federal taxable income of a taxpayer, the Department does not look behind the IRS's final determination. See Public Document (P.D.) 11-107 (6/14/2011). If the IRS adjusts its audit findings for the taxable years at issue, the Taxpayers will then be permitted to file amended returns to correct their liability for the taxable years changed by the IRS pursuant to Va. Code § 58.1-311 and Va. Code § 58.1-1823 A(ii).

The Code of Virginia sections and public document 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 website. If you have any questions concerning this

determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings Division, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4821136881.D