Was an appeal complete when a taxpayer mentioned an IRS dispute and challenged penalties and interest but identified no error, facts, or legal authority?

Subject

Appeal failed to identify any error, facts, or legal grounds

Plain-English summary

Virginia denied the appeal because the taxpayer did not explain what was wrong with the 2012 assessment. He had filed a Virginia return showing tax due, did not pay it, and later mentioned an IRS disagreement while contesting penalties and interest.

A complete administrative appeal had to identify each alleged assessment error, state the facts and grounds supporting the taxpayer's position, and cite controlling legal authority. The taxpayer's letter supplied none of those elements. Because the assessment was presumed correct, the incomplete appeal could not shift or satisfy his burden of proof.

The tax, penalties, and interest remained payable. If the IRS dispute later produced a final change to federal adjusted gross income, the taxpayer could report that change through an amended Virginia return under Va. Code § 58.1-1823 A(ii).

What this means for you

• Saying you disagree is not a complete Virginia tax appeal.
• Identify every claimed error, the supporting facts, and the legal authority within the appeal period.
• An IRS dispute does not by itself excuse tax shown but unpaid on a Virginia return.
• A later federal change can be handled through the statutory amended-return process.

Citations and references

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

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-110

Original ruling text

July 16, 2014

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, 2012.

FACTS

The Taxpayer filed a Virginia individual income tax return for the 2012 taxable year that showed tax due. When the Taxpayer did not remit payment, the Department issued an assessment for the unpaid tax, plus penalties and interest. The Taxpayer filed an appeal, stating that he has a disagreement with the Internal Revenue Service (IRS) and contesting the Department's assessment of penalties and interest.

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, court 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 is on the taxpayer to show he was not subject to income tax in Virginia. In this case, an assessment was issued to the Taxpayer for the 2012 taxable year. The Taxpayer's letter does not set forth the alleged error, relevant facts or grounds upon which he relies as the basis of the appeal. As such, the Taxpayer has failed to file a complete appeal with regard to the taxable year at issue. Accordingly, the appeal must be denied, and the assessment for 2012 remains due and payable.

When a taxpayer has a disagreement with the 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. If the resolution of any disagreement the Taxpayer may have with the IRS results in a change in his federal adjusted gross income (FAGI) for the taxable year at issue, the Taxpayer may file an amended return to correct his FAGI.

An updated bill with interest accrued to date will be mailed to the Taxpayer. The bill should be paid within 30 days to avoid the accrual of additional interest. If payment is not received within 30 days, additional interest will accrue on the outstanding balance and collection action will begin.

The Code of Virginia sections and regulation cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5636579346.M