Could a taxpayer overturn a Virginia assessment based only on saying it was larger than taxes owed in other years when no 2010 Virginia return had been filed?

Subject

Taxpayer had not filed a Virginia individual income tax return,

Plain-English summary

Virginia kept its assessment in place unless the taxpayer filed the missing 2010 return. The IRS had adjusted the federal return, but Department records showed no Virginia return. After the taxpayer did not respond to requests for a return or proof that Virginia tax did not apply, the Department assessed from the best information available.

The taxpayer argued that the amount exceeded what he had owed in other years with the same employer. Virginia said that comparison did not overcome the assessment's presumption of correctness, and the Department would not look behind the IRS's final determination.

Virginia gave the taxpayer 30 days to file a 2010 state return and payment. It would process the return and adjust the assessment accordingly. Without the return, the assessment would be treated as correct and collection would resume.

What this means for you

• Respond to a Virginia request for a missing return or evidence that no filing was required.
• A comparison with other tax years does not by itself prove the assessed year is wrong.
• The taxpayer bears the burden of overcoming a Virginia assessment with records and a proper return.
• Filing the requested return can replace a best-information estimate with the liability shown by the complete facts.

Common questions

Q: Why was the assessment presumed correct?

A: Va. Code § 58.1-205 placed the burden on the taxpayer to show that it was wrong.

Q: Did Virginia say the estimated amount could never change?

A: No. It offered to process a timely 2010 return and adjust the assessment.

Q: What happened if no return was filed?

A: The assessment would stand as issued and collection action would resume.

Citations and references

• Va. Code §§ 58.1-111, 58.1-205, 58.1-311, and 58.1-312(A)(3).
• P.D. 11-107.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-54

Original ruling text

April 3, 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, 2010.

FACTS

The Taxpayer was audited by the Internal Revenue Service (IRS) for the 2010 taxable year. The IRS notified the Department of adjustments it made to the Taxpayer's federal income tax return. A review of the Department's records showed that the Taxpayer had not filed a Virginia individual income tax return, and the Department requested that the Taxpayer file a return or provide information to verify that he was not subject to Virginia income tax. When no response was received, the Department issued an assessment. The Taxpayer appeals, contending that the Department's assessment was greater than any other amount of Virginia income taxes he owed while he was employed by the same employer from March 2006 to May 2011.

DETERMINATION

Virginia Code § 58.1-311 requires any individual 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.

The Taxpayer states that he was employed by the same company from March 2006 to May 2011 and never owed as much as was assessed in this case. Where the IRS has audited the federal taxable income of a taxpayer, however, the Department does not look behind the IRS's final determination. See Public Document (P.D.) 11-107 (6/14/2011).

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 he was not subject to income tax in Virginia.

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 2010 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. Please mail the return and payment for the corresponding liability to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23218-7203, Attention: *. 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 as issued and collection action will resume.

The Code of Virginia sections and public document 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/1-5834119721.M