Could preparing a 2011 Virginia return in tax software prove it was filed when the Department had no return, confirmation number, or payment record?

Subject

Taxpayer is hereby requested to file a Virginia income tax return for the 2011 taxable year to more accurately reflect his Virginia income tax liability.

Plain-English summary

Virginia kept the assessment in place unless the taxpayer filed the missing 2011 return. The Department had an IRS transcript showing taxable income but no Virginia return. It had requested a return or explanation and received no response, so it assessed from the federal information.

The taxpayer said he used software to prepare both returns. Virginia explained that preparation software does not necessarily transmit a state return. A successfully e-filed Virginia return would generate a confirmation number, and payment records could also support receipt. The taxpayer supplied neither.

Because no return had been filed, Virginia could assess at any time. It gave the taxpayer 30 days to file the 2011 return and corresponding payment; the Department would process it and adjust the estimate. Without a return, the assessment would stand and collection would resume.

What this means for you

• Saving or printing a tax-software return is not proof that it was transmitted.
• Retain the state e-file confirmation number and payment record.
• Respond promptly when Virginia says it cannot locate a return.
• A proper return and records can replace a best-information estimate with the correct liability.

Common questions

Q: Did filing the federal return prove the Virginia return was filed?

A: No.

Q: What proof did Virginia expect for electronic filing?

A: A confirmation number or other proof such as payment of the tax due.

Q: Could the estimated assessment be adjusted?

A: Yes, after the taxpayer filed the requested 2011 return.

Citations and references

• Va. Code §§ 58.1-102, 58.1-104, 58.1-111, 58.1-205, 58.1-301, 58.1-312(A)(1), 58.1-321, and 58.1-341.
• IRC § 6103(d).
• P.D. 14-33 and P.D. 14-118.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-49

Original ruling text

April 3, 2015

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond 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 obtained information from the Internal Revenue Service (IRS) indicating that the Taxpayer received taxable income for the 2011 taxable year. Department records did not indicate that the Taxpayer had filed a Virginia individual income return and a request for information was made. When no response was received, the Department issued an assessment based on the IRS information. The Taxpayer appeals the assessment, contending the Department did not specify the IRS information used as the basis of the assessment. The Taxpayer also argues that he used software to prepare both his federal and state returns and believes the Department should have contacted him sooner about the deficiency.

DETERMINATION

Taxability of Income

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).

By letter dated April 4, 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 federal income tax return provided by the IRS in June 2014.

Electronically Filed Returns

The Taxpayer claims he used tax software to prepare his Virginia return. While tax preparation software is commonly used by tax professionals and individuals for tax return completion, such software does not, generally, automatically electronically transmit those returns. While it appears the Taxpayer filed his 2011 federal return, the Department does not have any record of receiving the Taxpayer's return.

The Department has established procedures for accepting electronically filed returns. When a return is filed electronically, the Department will issue a confirmation number. See P.D. 14-118 (7/24/2014). If the Taxpayer did file with Virginia, he should have the confirmation number confirming the receipt of the return or proof of payment of any tax due.

Statute of Limitations — Tax Assessments

Virginia Code § 58.1-104 generally requires the Department to make an assessment of underpaid tax within three years from the last day prescribed by law for the timely filing of the return. When a taxpayer fails to file a required Virginia return, however, Va. Code § 58.1-312 A 1 permits the Department to assess the appropriate tax at any time. Because the evidence indicates the Taxpayer did not file a 2011 Virginia return, the Department acted within its authority to issue the assessment.

Further, Virginia receives approximately 3.5 million individual income tax returns per year. Only a small portion of the individual taxpayers can be audited or reviewed annually. As such, it is incumbent upon the taxpayer to retain and review suitable records and documents to determine his proper Virginia income tax liability. See Va. Code § 58.1-102.

CONCLUSION

The assessment at issue was made based on the best information available to the Department pursuant to Va. Code § 58.1-111. Virginia Code § 58.1-205 provides that in 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 correct amount of his tax liability for the 2011 taxable year.

The Taxpayer may have additional information that more accurately reflects his Virginia taxable income. Accordingly, the Taxpayer is hereby requested to file a Virginia income tax return for the 2011 taxable year to more accurately reflect his Virginia income tax liability.

The Taxpayer should file the requested return within 30 days of the date of this letter. Mail the return and payment for the corresponding liability to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attention: *, P.O. Box 27203, Richmond, Virginia 23218-7203. Once the return is received, it will be processed and the assessment will be adjusted accordingly. If the return is not filed within the allotted time, the assessment will be considered to be correct and collection action will resume.

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/1-575803616.D