The Department assessed me based on IRS 1099 information because I never filed a Virginia return, and the tax due looks way too high -- what can I do?

Plain-English summary

The IRS notified the Department that a taxpayer may have been required to file a Virginia individual income tax return for 2017, based on two Forms 1099 the taxpayer received (one for non-employee compensation, one for interest income). Because the Department had no Virginia return on file for the taxpayer, it requested additional information from her to determine whether she owed Virginia tax. When she didn't respond, the Department assessed tax using the best information reasonably available -- the amounts shown on the 1099s. The taxpayer appealed, arguing the income attributed to her (and the resulting tax) must be wrong because it was much higher than what she normally paid, and claiming she had actually filed her 2017 return late.

Virginia law requires a resident who must file a federal income tax return to also file a Virginia return (with limited exemptions), and separately lets the Department obtain IRS information under federal law (IRC § 6103(d)) to determine a non-filer's likely tax liability. Here, the Department had never actually received the return the taxpayer said she filed late. Without a return, the best information available to the Department was the two 1099s reported to the IRS.

The Tax Commissioner upheld the assessment as properly based on that best-available information, but didn't close the door: if either 1099 was actually incorrect, the taxpayer needs to go back to the entity that issued it and get a corrected form -- and, more importantly, she still needs to actually FILE her 2017 Virginia return with supporting documentation (including any corrected 1099). She was given 60 days to do so; if she does, the Department will review it and adjust the assessment as appropriate. If she doesn't, the assessment stands as issued.

What this means for you

Taxpayers who receive a best-information-available assessment after not filing a return

The assessment being based on 1099s or other third-party data (rather than your own actual income figures) isn't grounds for reversal by itself -- you need to actually FILE the missing return, with supporting documentation, within the deadline the Department gives you. Simply asserting the number looks too high, without filing, won't move the needle.

Taxpayers who believe a 1099 reported to the IRS is wrong

Address that directly with the business or individual who issued the 1099 and obtain a corrected form -- the Department relies on the IRS data it has, and won't independently second-guess a 1099's accuracy without a correction from the payer.

Taxpayers who say they already filed a return the Department has no record of

Don't assume the Department will simply take your word for it -- if there's no return on file, be prepared to actually (re)submit the return itself, since a bare assertion that you filed isn't the same as the Department having received and processed it.

Common questions

Q: The Department assessed me based on 1099 information from the IRS -- can I get that reversed just by saying the amount is too high?
A: No -- you generally need to actually file the missing Virginia return with supporting documentation. The Department will review it and adjust the assessment if warranted, but a bare objection to the amount, without filing, isn't enough.

Q: What if one of the 1099s the Department is relying on is wrong?
A: You need to go back to the entity that issued the 1099 and get a corrected form, then submit that corrected form along with your Virginia return.

Q: What happens if I don't respond or file within the deadline given?
A: The assessment will be considered correct as issued, and collection can proceed.

Citations and references

• Va. Code § 58.1-341 -- requires a Virginia resident who must file a federal return to also file a Virginia return, subject to the § 58.1-321 exemption
• Va. Code § 58.1-111 -- authorizes the Department to assess tax using the best information available when a proper return isn't filed
• IRC § 6103(d) -- authorizes the Department to obtain taxpayer information from the IRS to determine a non-filer's tax liability

Subject

Administration : Assessment - Best Information Available

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-108

Original ruling text

August 10, 2021

Re: § 58.1-1821 Appeal: Individual Income Tax

Dear *:

This will respond 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, 2017.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia individual income tax return. Because no return was on file, the Department requested additional information from the Taxpayer to determine if she was required to file a return and pay Virginia income tax. When no response was received, the Department issued an assessment based upon the best information available. The Taxpayer appeals, contending that the income attributed to her must be incorrect because the tax due on the assessment was much greater than what she normally owes.

DETERMINATION

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 Virginia Code § 58.1-321. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia individual income tax return. When a resident does not file a proper Virginia return, Internal Revenue Code (IRC) § 6103(d) authorizes the Department to obtain information from the IRS that will enable the Department to determine the resident’s tax liability.

The Taxpayer states that her 2017 return was filed late, but the Department has never received a such a return from the Taxpayer. The IRS information available to the Department indicates that the Taxpayer received a Form 1099 from * listing $ of non-employee compensation income and a 1099 from for $ of interest income, for a total income of $**.

The assessment at issue was made based upon the best information available to the Department pursuant to Virginia Code § 58.1-111. If either of the 1099s is incorrect, the Taxpayer must address that matter with the entity that issued the 1099 and obtain a corrected form. The Taxpayer should also file a Virginia individual income tax return for the 2017 taxable year and provide any necessary supporting documentation, including any corrected 1099 form she may be able to obtain.

The return should be submitted within 60 days from the from the date of this letter to: Virginia Department of Taxation, Office of Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *. Upon receipt, the return will be reviewed and the assessment will be adjusted, as appropriate. If the return is not received within the allotted time, the assessment will be considered correct as issued.

The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s website. 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/3639-C

Related Documents

20-61