Could taxpayers overturn Virginia assessments based on IRS and withholding information without objective evidence that the adjustments were wrong?

Plain-English summary

Virginia upheld individual income-tax assessments for 2011 through 2014 after adjusting the couple's federal adjusted gross income, tax credits, and Virginia withholding from available federal and state information. Their original returns had produced refunds; after adjustment, the balances included those refunded amounts, new tax liability, and interest.

Virginia starts with federal adjusted gross income and may obtain IRS information to determine state liability. An assessment is presumed correct, and the taxpayers offered no objective evidence disproving the adjustments. Their bankruptcy cases also did not provide a basis for relief because Department records showed dismissal without discharge.

Common questions

Can Virginia use IRS information? Yes, under the federal provision cited in the ruling.

Why did the new bills include old refunds? The adjustments converted refund returns into liability returns.

Did the bankruptcy claims eliminate the debt? No. The cited cases had been dismissed without discharge.

Citations and references

• Va. Code §§ 58.1-301, 58.1-322, 58.1-205, and 58.1-111
• I.R.C. § 6103(d)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-143

Original ruling text

July 17, 2018

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 assessments issued to * (the “Taxpayers”) for the taxable years ended December 31, 2011 through 2014.

FACTS

The Taxpayers, a husband and wife, filed Virginia individual income tax returns for the taxable years ended December 31, 2011 through 2014. Under review, the Department made adjustments to the federal adjusted gross income (FAGI), claimed tax credits, and Virginia withholdings for all four years. The adjustments resulted in additional tax due for all four taxable years, and the Department issued assessments. The Taxpayers appeal, contending that the adjustments were incorrect.

DETERMINATION

Virginia Code § 58.1-301 provides , with certain exceptions, 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. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia . For individual income tax purposes, Virginia “ conforms ” to federal law, in that it starts the computation of Virginia taxable income with 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 Virginia Code § 58.1-322.

IRC § 6103(d) authorizes the Department to obtain information from the Internal Revenue Service (IRS) that will enable the Department to determine a resident’s tax liability. In this case, the Department adjusted the FAGI and withholdings reported on the returns based on information available. The original returns filed for the 2011 through 2014 taxable years resulted in a refund being issued for each year. When the assessments were made based on the Department’s adjustments, the returns became liability returns and the balance due included the amounts previously refunded and the new liability plus interest.

Under the provisions of Virginia Code § 58.1-205, in any proceeding related 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 Taxpayers to show the Department’s assessment is incorrect. The Department adjusted the Taxpayers’ returns based on the information available as permitted by Virginia statute. See Virginia Code § 58.1-111. The Taxpayers have provided no objective evidence to show that the Department’s assessment are incorrect. While the Taxpayers assert that they have been involved in a bankruptcy, Department records show that the cases have been dismissed without discharge. Therefore, I find no basis to abate the assessments for the 2011, 2012, 2013 or 2014 taxable years.

The Taxpayers will receive updated bills with accrued interest to date. The Taxpayers should remit payment of the outstanding balance within 30 days of the updated bill date to avoid the accrual of additional interest.

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/1633.A