Did an IRS reconsideration request stop Virginia from assessing tax based on the IRS's existing 2007 audit adjustment?

Subject

Pending IRS reconsideration did not suspend Virginia assessment

Plain-English summary

Virginia upheld the 2007 assessment because the taxpayer's pending request for IRS reconsideration did not change the federal information then available. The taxpayer had not timely filed a Virginia amended return reporting the IRS audit changes. The amended return she later filed also did not reflect the federal adjustment received by Virginia.

Virginia required an individual to report a final federal taxable-income change within one year. If the taxpayer failed to do so, the Department could assess the resulting Virginia tax at any time. The Department also stated that it would not look behind the IRS's final determination while applying the federal information.

The assessment and accrued interest remained payable. If the IRS later revised the 2007 audit findings, however, the taxpayer could file an amended Virginia return under the cited provisions to correct her state liability.

What this means for you

• An IRS audit change can require a separate Virginia amended return within one year.
• A pending federal reconsideration does not by itself erase or suspend Virginia's assessment based on existing IRS data.
• The amended Virginia return must actually reflect the federal change being reported.
• A later IRS revision can support a later Virginia correction under the cited amendment rules.

Citations and references

• Va. Code §§ 58.1-311, 58.1-312 A 3, and 58.1-1823 A(ii).
• P.D. 11-107, discussed in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-119

Original ruling text

July 24, 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, 2007.

FACTS

The Taxpayer was audited by the Internal Revenue Service (IRS) for the 2007 taxable year, and the IRS notified the Department of adjustments it made to the Taxpayer's federal income tax return. A review of the Department's records showed that the Taxpayer had not filed an amended Virginia income tax return to report the changes.

After the Department notified the Taxpayer that it was adjusting her return, the Taxpayer filed an amended return, but it did not reflect the federal information the Department had received. The Department subsequently issued an assessment to the Taxpayer based on the federal information. The Taxpayer appeals the assessment, contending she is pursuing reconsideration from the IRS.

DETERMINATION

Virginia Code § 58.1-311 requires any individual to report a change or correction in federal taxable income 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.

The Taxpayer asserts that she has filed an amended federal return and is pursuing reconsideration of the audit. 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). The Department adjusted the Taxpayer's 2007 return based on federal information available from the IRS as permitted by Virginia statute. As such, the 2007 assessment remains due and payable.

The Taxpayer will receive an updated bill with accrued interest to date. The bill should be paid within 30 days of the bill date to avoid the accrual of additional interest. Further, if the IRS adjusts its audit findings for the 2007 taxable year, the Taxpayer will be permitted to file an amended return to correct her liability pursuant to Va. Code § 58.1-311 and Va. Code § 58.1-1823 A(ii).

The Code of Virginia sections and public document 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/1-5601611806.M