Could an employer reduce estimated Virginia withholding assessments by filing its annual return and supplying W-2 and payroll records?

Subject

Employer records supported reductions to withholding assessments

Plain-English summary

Virginia abated the employer's 2009 estimated withholding assessment and sent the 2010-2011 assessments back for adjustment based on payroll evidence. The appeal showed that the original estimates exceeded the proper amounts.

Virginia may estimate withholding tax when an employer does not file the required annual report and employee Forms W-2. For 2009, the Department had issued an estimate for the missing annual report, but its records showed that the employer later filed the annual return in November 2012 and another assessment was issued. The estimated assessment therefore had to be abated.

For 2010 and 2011, the employer had filed quarterly withholding reports but not the annual reconciliation returns. On appeal it supplied W-2 forms and payroll distribution reports. The Department found that the assessments were too high and directed the auditor to adjust them using that information.

What this means for you

• Missing annual withholding reports can lead Virginia to estimate tax from available information.
• Quarterly reports do not replace the required annual reconciliation and W-2 submission.
• Filed returns and detailed payroll records can support abatement or adjustment of an estimate on appeal.
• The ruling did not specify the final 2010-2011 amounts; it returned those periods to the auditor for calculation.

Common questions

Q: Why was the 2009 estimated assessment abated?

A: Department records showed that the employer later filed the annual return and a separate assessment was issued.

Q: Were the 2010 and 2011 assessments fully canceled?

A: The ruling says they exceeded the proper amount and had to be adjusted based on the supplied payroll information; it does not state the final balances.

Q: What records supported the appeal?

A: Copies of Forms W-2 and payroll distribution reports for both years.

Citations and references

• Va. Code §§ 58.1-1821, 58.1-478 C, 58.1-111, and 58.1-1822.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-32

Original ruling text

March 3, 2015

Re: § 58.1-1821 Application: Withholding Tax

Dear *:

This will reply to your letter in which you seek correction of withholding tax assessments issued to * for the taxable periods January 2009 through December 2011. I apologize for the delay in responding to your appeal.

FACTS

The Department issued assessments to the Taxpayer for failure to report employee withholding for the taxable periods January 2009 through December 2011. The assessments were based on information available to the Department. The Taxpayer appeals the assessments, contending the amounts assessed are erroneous.

DETERMINATION

Estimated Assessments

Virginia Code § 58.1-478 C requires every employer to file an annual report of Virginia income tax withheld, no later than February 28 of the calendar year succeeding the calendar year in which wages were withheld from employees. The return must include a copy of the Form W-2 furnished to each employee. When an employer fails to file such a report, Va. Code § 58.1-111 grants the Department authority to estimate the amount of taxes due based on information available to the Department.

2009

The Department issued two assessments for the 2009 taxable year. The Department issued an estimated assessment to the Taxpayer for failure to file an annual report. Department records show that the Taxpayer subsequently filed an annual return for 2009 in November 2012 and another assessment was issued. As such, the 2009 estimated assessment will be abated.

2010 and 2011

The Taxpayer submitted reports for employee withholding for all quarters during the 2010 and 2011 taxable periods. The Taxpayer, however, failed to file the annual reconciliation returns. The Taxpayer provided copies of W-2 forms and payroll distribution reports for both taxable years with the appeal.

Under Va. Code § 58.1-1822, if an assessment is appealed by a taxpayer, and the Department is satisfied by the evidence submitted, the Department may order that such assessment be adjusted. A review of the information provided indicates the 2010 and 2011 assessments exceed the proper amount due. As such, these assessments will be returned to the auditor and adjusted based on the payroll information provided by the Taxpayer.

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 website. 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/1-5333533327.D