Did a copy of an unrecorded Virginia return overcome an IRS-based assessment when the taxpayer supplied no federal transcript or proof of payment?

Subject

Unrecorded return did not overcome IRS-based assessment

Plain-English summary

Virginia found no basis to abate the IRS-based assessment because the taxpayer did not objectively support the lower income shown on his copy of a Virginia return. Department records showed neither the claimed 2011 state return nor payment of its reported liability, and the IRS indicated that no federal return had been filed.

The IRS information received by Virginia showed income significantly above the federal adjusted gross income on the taxpayer's copy. Without an official federal transcript or other proof, Virginia treated the IRS information and assessment as correct.

Result: the assessment remained due, but the taxpayer received one final 60-day opportunity to document the liability reported on the Virginia return.

What this means for you

• Keep proof of filing and payment for both federal and Virginia returns.
• Reconcile Virginia federal adjusted gross income to the official federal filing.
• Respond promptly to Department information requests before an estimated assessment is issued.
• Supply an official federal transcript when IRS and state-return figures conflict.
• Willfully refusing necessary information can also limit judicial relief.

Common questions

Q: Was a copy of the Virginia return enough?

A: No. It conflicted with IRS information and was unsupported by filing, payment, or federal-return records.

Q: Was the assessment immediately beyond correction?

A: No. The taxpayer had 60 days to provide objective documentation before it became immediately payable.

Citations and references

• Va. Code §§ 58.1-301, 58.1-321, 58.1-341, 58.1-322, 58.1-205, and 58.1-1826.
• IRC § 6103(d).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-140

Original ruling text

June 30, 2015

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, 2011. I apologize for the delay in responding to your appeal.

FACTS

The Department received information from the Internal Revenue Service (IRS) that the Taxpayer may have income subject to Virginia's income tax. The Department requested additional information from the Taxpayer to determine if the Taxpayer's income was subject to Virginia individual income tax. When the Taxpayer did not respond to the information requests, the Department issued an assessment for the year at issue.

The Taxpayer filed an appeal and provided a copy of his 2011 Virginia income tax return. Because the federal adjusted gross income (FAGI) reported by the Taxpayer did not match the FAGI reported by the IRS, the Department requested an official transcript of the 2011 federal income tax return. As of the date of this letter, the federal transcript has not been received.

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). Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322.

Virginia Code § 58.1-341 provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Va. Code § 58.1-321. When a resident does not file a proper Virginia return, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will help in determining the resident's tax liability. See Public Document (P.D.) 14-33 (3/7/2014) and P.D. 15-49 (4/3/2015).

By letter dated April 16, 2014, the Department explained that it was unable to locate a record of the Taxpayer filing a 2011 Virginia income tax return and requested that the Taxpayer either file a Virginia income tax return or provide an explanation of why he was not required to file. Because the Taxpayer failed to respond to this inquiry, the Department issued an assessment based on a transcript of the Taxpayer's income information provided by the IRS in June 2014.

In his appeal, the Taxpayer claims he filed his 2011 Virginia individual income tax return in April 2013, which reported a much lower liability than the assessment issued by the Department. A copy of the return was attached to the appeal. Department records, however, do not show a 2011 return on file or payment of the liability reported on the return. Further, a check with the IRS indicates the Taxpayer has not filed a federal income tax return for the taxable year at issue.

In addition, the documents received from the IRS indicate the Taxpayer received income that was significantly higher than the FAGI reported on the Virginia return. Absent objective evidence of FAGI reported by the Taxpayer, the Department will consider the information provided by the IRS to be correct.

Under Va. Code § 58.1-205 any proceeding relating to the interpretation of the tax laws of Virginia, an "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 the Department's assessment is incorrect. In addition, Va. Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the assessment was attributable to a taxpayer's willful failure or refusal to provide the Department with necessary information as required by law.

Based on the available evidence, I find no basis to abate the assessment for the 2011 taxable year. Accordingly, the assessment remains due and payable.

I will, however, grant the Taxpayer one final opportunity to provide documentation to support his liability reported in the 2011 Virginia tax return. The information should be submitted within 60 days from the date of this letter to: Virginia Department of Taxation, Appeals and Rulings, Attention: *, Post Office Box 27203, Richmond, Virginia 23261-7203. If the requested information is not provided within the time allowed, the assessment will become immediately due and payable.

The Code of Virginia sections, and public documents 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/1-5790790983.D