Did a pending IRS reconsideration prevent Virginia from assessing 2005 tax when the taxpayer had not filed a Virginia return?

Subject

Pending federal dispute did not stop 2005 Virginia assessment

Plain-English summary

Virginia upheld the 2005 assessment because the Department had no original Virginia return and the return later filed did not match the IRS adjustment. The taxpayer's ongoing work with the IRS did not require Virginia to disregard the federal information then available.

Virginia required taxpayers to report federal taxable-income changes within one year. If the taxpayer failed to file the necessary amended return, 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 that information.

The taxpayer had to pay the updated bill within 30 days to avoid additional interest. If the IRS later changed the 2005 audit findings, he could file an amended Virginia return under the cited provisions to correct the state liability.

What this means for you

• A missing Virginia return and an IRS adjustment create separate state filing problems.
• A later-filed Virginia return must reconcile to the federal information or explain a valid difference.
• Pending IRS reconsideration does not automatically suspend Virginia collection.
• A later federal change can support a later Virginia amendment.

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. 14-120

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, 2005.

FACTS

The Taxpayer was audited by the Internal Revenue Service (IRS) for the 2005 taxable year. 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 a Virginia individual income tax return, and the Department requested that the Taxpayer file a return or provide information to verify that he was not subject to Virginia income tax.

In response, the Taxpayer filed a Virginia return, but it did not agree with the IRS information. The Department adjusted Virginia return and issued an assessment. The Taxpayer appeals the assessment, contending he has been working with the IRS to resolve issues with his federal income tax return.

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 he 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 2005 return based on federal information available from the IRS as permitted by Virginia statute. As such, the 2005 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 2005 taxable year, the Taxpayer will be permitted to file an amended return to correct his 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/1-5617686086.M