Could taxpayers contest unpaid tax from their 2005 return by saying an IRS dispute was pending without filing a complete Virginia appeal?

Plain-English summary

Virginia denied the appeal because the taxpayers did not file a complete administrative challenge. They filed their 2005 Virginia return in March 2010 without paying the reported tax, then said they disagreed with the assessment and were negotiating their federal liability with the IRS.

A complete appeal had to state each alleged error, the supporting facts and grounds, and controlling legal authority within the 90-day period. Their letter did not do so, and they did not supply the requested information. The assessment therefore remained due.

The pending IRS dispute offered a later correction route, not a complete present appeal. Within one year after the federal change became final, the taxpayers could file an amended Virginia return reflecting the final federal adjusted gross income.

Common questions

Q: Is a statement of disagreement a complete Virginia tax appeal?
A: No. The ruling required identified errors, relevant facts and grounds, and controlling legal authority.

Q: Could the taxpayers amend after the IRS matter ended?
A: Yes. The ruling allowed an amended return within one year after the final federal determination.

Citations and references

• Va. Code §§ 58.1-205, 58.1-1821, and 58.1-1823(A)(ii).
• 23 VAC 10-20-165.

Subject

Tax was not paid with the return. A complete administrative appeal not filed

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-72

Original ruling text

May 4, 2012

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 "Taxpayers") for the taxable year ended December 31, 2005. I apologize for the delay in responding to your letter.

FACT'S

In March 2010, the Taxpayers filed a Virginia individual income tax return for the 2005 taxable year. Upon review, the Department issued an assessment because the tax was not paid with the return. The Taxpayers filed an appeal, stating that they disagreed with the assessment and were negotiating with the Internal Revenue Service to resolve their 2005 federal tax liability.

DETERMINATION

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."

Title 23 of the Virginia Administrative Code (VAC) 10-20-165 mandates that a taxpayer file a complete appeal within the 90-day limitations period. A complete administrative appeal must include:

1. A statement signed by the taxpayer or duly appointed or authorized agent or attorney setting forth each alleged error in the assessment;

2. The grounds upon which the taxpayer relies and all facts relevant to the taxpayer's contention; and

3.Controlling legal authority (statutes, regulations, rulings of the Tax Commissioner, count decisions, etc.) upon which the taxpayer's position is based.

Pursuant to Va. Code § 58.1-205, any "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 he was not subject to income tax in Virginia. In this case, an assessment was issued to the Taxpayers for the 2005 taxable year. The Taxpayers' letter does not set forth the alleged error, relevant facts or grounds upon which they rely as the basis of the appeal. Further, the Department has made several attempts to obtain information from the Taxpayers regarding their liability. The Taxpayers have failed to file a complete appeal with regard to the taxable year at issue. Accordingly, the appeal must be denied and the assessment for 2005 remains due and payable.

When a taxpayer has a disagreement with the Internal Revenue Service (IRS), Va. Code § 58.1-1823 A(ii) allows such taxpayer to report a change or correction in federal tax liability on which the state tax is based within one year of the final determination of such change or correction by filing an amended return with the Department. Upon resolution of current negotiations with the IRS, the Taxpayers may amend the 2005 Virginia tax return to correct their FAGI as determined by the IRS.

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 website. If you have any questions concerning this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4615646093.E