Could a taxpayer shift a 2007 Virginia assessment to the preparer who completed the return, and could later deduction records still reduce it?

Plain-English summary

Using a tax preparer did not shift the taxpayer's Virginia liability to that preparer. Virginia's self-assessment system made the taxpayer responsible for the accuracy of the filed return.

The Department had requested documents supporting 2007 itemized deductions and issued an estimated assessment when no response arrived. A taxpayer who receives bad professional advice may have recourse against the preparer, but the Department lacked authority to assess the taxpayer's own liability against that professional.

The taxpayer later supplied some records with the appeal. Virginia adjusted the assessment for documents that supported the deductions, while noting that other materials mixed 2006 and 2007 items.

The Commissioner allowed one final 30-day period for additional proof. If none arrived, the revised assessment would be treated as correct and collection would resume.

Common questions

Q: Does preparer error excuse the taxpayer from the tax?
A: No. The taxpayer remains responsible for return accuracy and may separately pursue the preparer.

Q: Did Virginia ignore documents submitted with the appeal?
A: No. It adjusted the assessment for supported items and allowed more time for additional records.

Citations and references

• Va. Code §§ 58.1-111, 58.1-219, 58.1-301, 58.1-322(D)(1), and 58.1-1103.
• Va. Code § 58.1-1812.
• Virginia Public Document 11-82 (May 31, 2011).

Subject

Department does not have the authority to assess the taxpayer's liability against the tax preparer

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-93

Original ruling text

June 8, 2012

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you appeal an assessment of individual income tax issued to * (the "Taxpayer") for the taxable year ended December 31, 2007. I apologize for the delay in the Department's response.

FACTS

The Taxpayer's Virginia individual income tax return for the taxable year 2007 was selected for review by the Department. Documentation was requested to support certain amounts reported on the tax return. An assessment was issued when a response was not received.

The Taxpayer appeals the assessment, contending the audit was unfair because the tax return was prepared by a tax preparer. Further, she requests that the Department review the additional documentation provided with her appeal.

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), with certain exceptions.

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. The Department does retain the authority under Va. Code § 58.1-219 to adjust federal adjusted gross income and itemized deductions where there is clear evidence that the amounts reported on the federal or Virginia income tax return are not consistent with the IRC.

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. The Department exercised its authority to examine the Taxpayer's records to determine the nature of itemized deductions as provided under Va. Code § 58.1-1103.

By letter dated January 28, 2011, the Department requested that the Taxpayer provide documentation to verify the amount of itemized deductions claimed on her 2007 income tax return. No response was received. When a taxpayer fails or refuses to provide requested documentation, Va. Code § 58.1-111 permits the Department to make an estimate of the amount of taxies due from any information in its possession and issue an assessment to such taxpayer.

Virginia's taxing system is based largely on the theory of self assessment. A taxpayer computes his own income and tax, fills out his own return, files the return, and pays the tax indicated. Virginia has implemented a self-assessment system based on the federal system because it is less intrusive upon taxpayers, simpler, and less costly to administer. Consequently, taxpayers are responsible for the information provided on income tax returns.

Further, in a situation where a taxpayer relies on an accountant, lawyer, tax preparer or other tax professional and such professional provides inaccurate or erroneous advice that results in a penalty, the taxpayer has recourse against the tax professional for the error. The Department does not have the authority to assess the taxpayer's liability against the tax preparer in such circumstances. See Public Document 11-82 (05/31/11).

The Taxpayer's reliance on the tax preparer in preparing the 2007 income tax return, while understandable, does not relieve her of the responsibility for ensuring that the information reported on the return is accurate.

The Taxpayer did provide some of the requested information with the appeal. While several documents support the itemized deductions claimed on for 2007, some of the documentation related to both her 2006 and 2007 returns. The assessment has been adjusted based on the information provided.

In addition, I will allow the Taxpayer one last opportunity to provide the Department with additional information to support the itemized deductions claimed on the 2007 tax return. This information should be mailed to the Department's Office of Tax Policy, Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23261­ 7203, Attn: *. Upon receipt, the documentation will be reviewed to determine if a revision to the assessment is appropriate. If the documentation is not provided within 30 days from the date of this letter, the assessment will be considered correct as issued and collection action will resume.

If you are unable to pay the balance due in full within the time provided, you may contact the Department's Collections Unit at * to arrange a payment plan. Please note that while a payment plan will provide an extended period for payment of the balance due, interest will continue to accrue on the balance until paid, pursuant to Va. Code § 58.1-1812.

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 website. If you have any questions about this determination, you may contact * at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4748124677.E