Could taxpayers defeat a Virginia assessment merely by saying they had submitted documents disputing the IRS adjustment?

Subject

The Taxpayers have failed to show the Department's assessment is incorrect.

Plain-English summary

The IRS adjusted a married couple's 2012 federal income-tax return and notified Virginia. The couple did not file the required amended Virginia return, so the Department assessed additional state tax using the federal information.

Virginia does not look behind an IRS final determination when adjusting state taxable income. The couple said they had supplied the IRS with documents disputing its adjustment, but they did not show that the resulting Virginia assessment was incorrect. The Department therefore upheld the assessment.

If the IRS later changes its final findings for 2012, the couple may file an amended Virginia return based on that later federal determination.

Citations and references

• Va. Code §§ 58.1-311, 58.1-312 A 3, and 58.1-1823 A (ii).
• 23 VAC 10-20-180 B.
• P.D. 11-107.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 16-148

Original ruling text

July 22, 2016

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 “Taxpayers”) for the taxable year ended December 31, 2012.

FACTS

The Taxpayers, a husband and wife, were audited by the Internal Revenue Service (IRS) for the 2012 taxable year. The IRS notified the Department of adjustments it made to the Taxpayers' federal income tax return. The Taxpayers failed to file an amended Virginia income tax return reflecting the IRS adjustments. As a result, the Department issued an assessment based on the IRS information. The Taxpayers filed an appeal, contending they submitted documents to the IRS to refute the adjustment.

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 reflecting the federal adjustment, Va. Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time.

Where the Internal Revenue Service (IRS) has audited the federal taxable income of a taxpayer, the Department does not look behind the IRS's final determination. See Public Document (P.D.) 11-107 (6/14/2011). The Department adjusted the Taxpayers' 2012 income tax liability based on federal information available from the IRS as permitted by statute. The Taxpayers have failed to show the Department's assessment is incorrect.

Accordingly, the Department's assessment is upheld. The Taxpayers will receive an updated bill with accrued interest to date. The bill should be paid within 30 days of the bill date to avoid the accrual of additional interest.

Under Title 23 of the Virginia Administrative Code (VAC) 10-20-180 B, a final determination of a change in liability for the federal tax includes with certain exceptions, the refund by the IRS of any federal income or estate tax. A final determination may also include a copy of an RAR, Form 870, 90-day letter, closing agreement, or court decision. Thus, under Title 23 VAC 10-20-180 B, a taxpayer may have more than one final determination for a given taxable year. Therefore, if the IRS adjusts its audit findings for the 2012 taxable year, the Taxpayers will be permitted to file an amended return to correct their liability pursuant to Va. Code § 58.1-311 and Va. Code § 58.1-­1823 A (ii).

The Code of Virginia sections, regulation, 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 Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-6226956043.D