Did the husband's unemployment after military retirement mean this Virginia couple did not have to file a 2012 resident return?

Subject

The Taxpayers believed they would not be subject to Virginia income tax while unemployed.

Plain-English summary

A married couple did not respond to Virginia's filing inquiry because they believed the husband's unemployment after retiring from military service meant they owed no Virginia income tax.

The available federal information showed otherwise. The husband received more than $50,000 in retirement income, the wife received wages for part of 2012, and the ruling treated unemployment compensation as taxable income. A Virginia resident required to file federally generally also had to file a Virginia return unless the statutory Virginia income threshold applied.

Virginia therefore properly issued an assessment from the best information available. The couple received 30 days to file a 2012 resident return so the Department could adjust the estimate to their actual liability. They were also told to review earlier years because Virginia could assess required but unfiled returns at any time.

Citations and references

• Va. Code §§ 58.1-301, 58.1-322, 58.1-341, 58.1-321, 58.1-111, and 58.1-312 A 1.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 16-182

Original ruling text

September 14, 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 Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayers, a husband and wife, may have been required to file a Virginia individual income tax return for the 2012 taxable year. The Department requested information to verify whether the Taxpayers were subject to Virginia income tax. When a response was not received, the Department issued an assessment based on the available information. The Taxpayers filed an appeal, contending the husband retired from military service in July 2010 and was unemployed until April 2013. The Taxpayers believed they would not be subject to Virginia income tax while unemployed.

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 federal adjusted gross income (FAGI). Income properly 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. Virginia Code § 58.1-321 prohibits the imposition of personal income tax on spouses whose combined Virginia taxable income is less than $23,300 or $11,950 for married individuals who file separate returns.

The husband asserts he was unemployed in 2012. Pursuant to Internal Revenue Code (IRC) § 1281, unemployment compensation is subject to individual income tax and should also be included in FAGI. Further, information provided by the IRS shows the husband received retirement income in excess of $50,000 and the wife received wage income for a portion of the 2012 taxable year.

Because the Taxpayers were required to file Virginia income tax returns, the Department was correct in making the assessment. The assessment was made based on the best information available to the Department pursuant to Va. Code § 58.1-111. The Taxpayers, however, may have information that better represents their Virginia income tax liability for the taxable year at issue. Therefore, the Taxpayers should file a 2012 Virginia resident income tax return to more accurately reflect their Virginia tax liability.

The 2012 return and any additional required returns, should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *. Upon receipt, the documentation will be reviewed and assessment will be adjusted, as appropriate. If the return is not filed within the allotted time, the 2012 assessment will be considered to be correct as issued and collection actions may resume.

Because the Taxpayers were under the impression they were not required to file returns, they should also review their income to determine if they are required Virginia income tax returns in preceding taxable years. If the Taxpayers fail to file required income tax returns, the Department may issue assessments at any time under Va. Code § 58.1-312 A 1.

The Taxpayers indicated that payment of the assessment would create a financial hardship. If the Taxpayers wish to pursue an offer in compromise based on doubtful collectability, the Taxpayers should complete the enclosed Offer in Compromise Form and Financial Information Statement. The completed form and statement will allow the Department to review and analyze the Taxpayers' financial situation. Upon completion of that review, a response will be issued to the Taxpayers. The Taxpayers also have the option to request a payment agreement with the Department's Collections Unit. The Collections Unit may be contacted at (804) 367-8045.

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/1-6250806254.D