Did Virginia have to restore a tuition deduction after the IRS denied it and the taxpayer failed to amend the 2011 Virginia return?

Subject

IRS denial of tuition deduction increased Virginia income

Plain-English summary

Virginia upheld the assessment because the IRS had denied the federal tuition-and-fees deduction. Virginia began its calculation with federal adjusted gross income, and the Department changed the 2011 Virginia figure to match the IRS transcript.

The taxpayer had to report a final federal income change within one year by filing an amended Virginia return. Failure to do so allowed Virginia to assess the resulting tax at any time.

Result: the remaining assessment and interest were due.

What this means for you

• Track final IRS changes that affect federal adjusted gross income.
• File the corresponding Virginia amended return within the statutory period.
• A deduction denied federally does not remain in Virginia's starting income without a specific state modification.

Common questions

Q: Did Virginia independently deny the tuition deduction?

A: It matched Virginia income to the IRS transcript after the federal denial.

Q: Why could Virginia assess later?

A: The taxpayer did not report the federal change as required.

Citations and references

• Va. Code §§ 58.1-301, 58.1-311, and 58.1-312(A)(3).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-187

Original ruling text

September 28, 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.

FACTS

Based on information provided by the Internal Revenue Service (IRS), the Department adjusted the Taxpayer's 2011 individual income tax to match federal adjusted gross income (FAGI). As a result, the Department issued an assessment for additional tax and interest. The Taxpayer appeals the assessment, contending her Virginia return was correct as filed.

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).

In the preparation of her federal Individual income tax return, the Taxpayer claimed a deduction for certain tuition and fees in computing FAGI. The IRS information provided indicates this deduction was denied by the IRS, which issued an assessment. The Department merely corrected the Taxpayer's FAGI to match the amount reported on the IRS transcript.

Virginia Code § 58.1-311 requires individuals 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.

Based on the foregoing, the assessment is correct as issued and there is no basis for relief. The Taxpayer satisfied only a portion of the 2011 tax liability. As such, the remaining liability is due and payable. The Taxpayer will receive an updated bill, which should be paid within 30 days of the bill date to avoid the accrual of additional interest.

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/1-6088407176.D