Did filing both part-year and nonresident returns prove that a couple abandoned Virginia domicile during a brief 2015 absence?

Subject

Taxpayer failed to respond to the request for adequate documentation.

Plain-English summary

A married couple filed both a part-year resident return and a nonresident return for 2015. Virginia issued the part-year refund, but the nonresident return showed unpaid tax, producing an assessment with penalty and interest.

The filings did not explain whether both returns were intended or whether the couple had Virginia-source income during a nonresident period. Their history showed Virginia resident returns before and after a claimed absence of less than six months.

Virginia's regulation treated a move away followed by return within six months as prima facie evidence that domicile was not abandoned. Because the couple did not answer the Department's documentation request, they received one final 30-day opportunity to prove a domicile change, explain both returns, or file a full-year 2015 resident return.

What this means for you

• A brief move away does not automatically change Virginia domicile.
• Filing both part-year and nonresident returns requires a clear factual and income explanation.
• A nonresident return is generally relevant only for Virginia-source income during nonresidency.
• Respond promptly to residency documentation requests.

Citations and references

• Va. Code § 58.1-302.
• 23 VAC 10-110-30.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-111

Original ruling text

June 21, 2017

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, 2015.

FACTS

The Taxpayers, a husband and a wife, filed both a part-year Virginia resident individual income tax return and a nonresident return for the 2015 taxable year. On the part-year return, the Taxpayers claimed a refund which the Department issued. The nonresident return indicated a tax was due but no payment was submitted. When the tax remained unpaid, an assessment was issued. The Taxpayers paid the assessment and appealed, indicating they did their best to comply with Virginia law.

DETERMINATION

Assessment

The assessment was issued because the returns were accounted for separately by the Department's accounting system. A refund was claimed on the Taxpayers' part-year return, and the refund was released in full. The nonresident return, however, indicated a tax was due. When the tax remained unpaid, an assessment including late payment penalties and interest was issued.

Because the Taxpayers' appeal refers to their 2015 “return”, it is unclear whether they intended to file both a part-year resident return and a nonresident return. A separate nonresident return would only have been necessary if the Taxpayers received Virginia source income during the period of nonresidency.

Domicile

Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. Code § 58.1-302. The domiciliary residence of a person means the permanent place of residence of a taxpayer and the place to which he intends to return even though he may reside elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon his Virginia domicile with no intention of returning to Virginia. Concurrently, that person must acquire a new domicile where that person is physically present with the intention to remain there permanently or indefinitely. An actual resident of Virginia means a person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia. A Virginia domiciliary resident, therefore, working in other parts of the country or in another country who has not abandoned his Virginia residency continues to be subject to Virginia taxation. Additionally, a person who is not a domiciliary resident of Virginia, but who stays in Virginia for an aggregate of more than 183 days is also subject to Virginia taxation.

In order to change from one legal domicile to another legal domicile, there must be (1) actual abandonment of the old domicile, coupled with an intent not to return to it, and (2) an acquisition of a new domicile at another place, which must be formed by personal presence and an intent to remain there permanently or indefinitely. The burden of providing that the domicile has been changed lies with the person alleging the change. In determining domicile, consideration may be given to the individual's expressed intent, conduct, and all attendant circumstances including, but not limited to, financial independence, profession or employment, income sources, residence of spouse, marital status, situs of real or tangible property, motor vehicle registration and licensing, and such other factors as may be reasonably deemed necessary to determine the person's domicile. A person's true intention must be determined with reference to all the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency.

The Department determines a taxpayer's intent through the information provided. A taxpayer has the burden of proving that he or she abandoned his or her Virginia domicile. If the information is inadequate to meet this burden, the Department must conclude that he or she intended to remain indefinitely in Virginia.

The Taxpayers filed Virginia individual income tax returns as Virginia residents for a number of years prior to 2015, and they also filed a Virginia resident return for the 2016 taxable year. On the part-year 2015 return, the Taxpayers listed their period of Virginia residency from January 1, 2015, to July 22, 2015. Their filing history, therefore, indicates a continuous period of Virginia residency, broken only for a brief period in 2015 for less than six months.

Under Title 23 of the Virginia Administrative Code (VAC) 10-110-30, moving outside of Virginia and then returning within six months constitutes prima facie evidence that an individual did not intend to abandon his Virginia domicile. Therefore, without evidence clearly indicating they abandoned their Virginia domicile and established domicile elsewhere, the Department must conclude that the Taxpayers remained domiciliary residents of Virginia for the entire 2015 taxable year.

By letter dated February 8, 2017, the Department requested documentation required to determine the Taxpayers' residency status for the 2015 taxable year. To date, the Taxpayers have failed to respond to the request.

The Taxpayers will be granted one last opportunity to provide adequate documentation with regard to their domiciliary status or file a 2015 Virginia resident individual income tax return. If the Taxpayers believe they properly filed for the 2015 taxable year, they should provide an explanation as why they filed both returns and submit documentation to support their residency status. The documentation or income tax return 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: *. If the documentation is not received within the allotted time, the case will be referred to the audit staff to issue an additional assessment to the Taxpayers as residents for the entire 2015 taxable year.

The Code of Virginia sections and regulation 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/1044.M