Did a copy of a federal return prove that Virginia's 2011 assessment used the wrong federal adjusted gross income?

Subject

Official IRS transcript was required to challenge federal income data

Plain-English summary

Virginia upheld the 2011 assessment because the taxpayer did not objectively disprove the IRS income data. Virginia begins a resident's taxable-income calculation with federal adjusted gross income, subject to specific state modifications.

The taxpayer supplied a copy of a federal return, but the IRS information available to Virginia showed significantly higher income. Without an official record establishing the federal adjusted gross income actually reported, the Department treated the IRS data as correct and directed the taxpayer to dispute any federal discrepancy with the IRS.

Result: the assessment remained in place, but the taxpayer received one final 30-day opportunity to submit an official federal return transcript.

What this means for you

• Compare the federal adjusted gross income on your Virginia return with official IRS records.
• A taxpayer-prepared copy may not overcome contradictory IRS information.
• Obtain an official transcript and correct federal reporting issues with the IRS.
• Respond within the Department's deadline to avoid additional interest or collection.

Common questions

Q: Did Virginia independently reconstruct the taxpayer's income?

A: No. It relied on the IRS information because the taxpayer provided no objective contrary evidence.

Q: What document could still change the result?

A: An official transcript of the 2011 federal income tax return.

Q: Was the assessment cancelled during the 30-day period?

A: No. It remained upheld unless the taxpayer timely supplied adequate official evidence.

Citations and references

• Va. Code §§ 58.1-301 and 58.1-322.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-204

Original ruling text

October 20, 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 Taxpayer filed a Virginia individual income tax return for the 2011 taxable year. Based on information received by the IRS, the Department adjusted the Taxpayer's return to match the federal adjusted gross income (FAGI) reported on the federal return and issued an assessment. The Taxpayer appeals the assessment, contending the assessment does not agree with his records.

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 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.

In his appeal, the Taxpayer claims he filed his 2011 return correctly and provided a copy of a federal income tax return. Information received from the IRS, however, indicates the Taxpayer's income 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. Because the Department's assessment was based on the information received from the IRS, the Taxpayer must contact the IRS to dispute the discrepancies in his income. Accordingly, the 2011 assessment is upheld.

The Taxpayer, however, will be granted a final opportunity to provide an official transcript of his federal income tax return. The documentation must be provided within 30 days from the date of this letter. Otherwise, the Taxpayer should remit payment of assessed tax and interest within 30 days to avoid the accrual of additional interest. Please send the requested information or payment to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261­7203, Attn: *.

The Code of Virginia sections 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/1-5810123381.D