I filed an amended Virginia return switching from the standard deduction to itemized deductions, which eliminated the tax I owed -- why did the Department reject it and keep the original assessment?

Plain-English summary

A taxpayer filed her 2016 Virginia individual income tax return after the due date without paying the tax shown as owed, which led the Department to assess tax, penalties, and interest. She later filed an amended Virginia return that both adjusted her reported income and switched her deductions from standard to itemized -- changes that, together, eliminated the tax due entirely. When she couldn't show that the IRS had accepted a corresponding amended federal return reflecting the same changes, the Department rejected the amendment and left the original liability in place. She appealed, arguing the Department was obligated to process her amended return, and separately asked for proof of the Department's calculations on her 2013 and 2017 assessments (without actually asking those years' assessments be abated).

Virginia generally relies on the accuracy of a taxpayer's federal return when reviewing the Virginia return built from it -- but the Department retains authority to independently verify amounts where there's clear evidence of inconsistency with the Internal Revenue Code, and when a taxpayer reports CONFLICTING figures across different filings, verifying which is correct becomes necessary rather than optional. Virginia's own regulation specifically requires a taxpayer filing an amended state return to claim a refund based on a change in federal taxable income to provide a copy of the IRS's Revenue Agent's Report, or other appropriate notice, confirming the IRS actually accepted that federal change -- essentially certifying the taxpayer's reported numbers to the Department. Because this taxpayer hadn't provided any such confirmation that the IRS accepted her 2016 amended federal return, the Department found no basis to abate the original assessment, and directed her to pay the balance (plus accrued interest) within 30 days. If she does eventually get IRS acceptance, she was told to submit that notice within 60 days of receiving it, at which point the Department would adjust her account to match. On the separate 2013/2017 information request, the Department noted its staff had already provided what was asked, with a customer-service contact for any further questions.

What this means for you

Anyone filing an amended Virginia return that changes deductions or income to eliminate tax due

If your amended state return is based on (or mirrors) a corresponding change to your federal return, be ready to provide proof the IRS actually accepted that federal amendment -- typically a Revenue Agent's Report or an equivalent IRS notice. Without it, expect the Department to reject the amended state return and leave your original assessment (with accruing interest) in place.

Taxpayers who file conflicting figures across their original and amended returns

The Department doesn't have to simply take your most recent numbers at face value once your filings conflict -- it can and will look for independent verification (like IRS confirmation) before accepting a later, more favorable set of figures.

Anyone waiting on the IRS to formally act on an amended federal return before Virginia will act on the matching state amendment

Keep track of when you actually receive IRS confirmation -- once you do, promptly submitting it (within any window the Department specifies, here 60 days) is what triggers the Virginia account adjustment; simply having filed the amended federal return isn't enough on its own.

Common questions

Q: I filed an amended Virginia return that eliminated my tax due by changing my deductions -- why was it rejected?
A: If the change traces back to a corresponding amended federal return, Virginia's regulations require proof the IRS actually accepted that federal amendment (a Revenue Agent's Report or similar notice) before the state amendment can be processed. Without that proof, the Department will reject the amendment and leave the original assessment in place.

Q: I've filed my amended federal return but the IRS hasn't acted on it yet -- what should I do?
A: Wait for the IRS's acceptance notice, then submit it to the Department promptly (the Department gave 60 days from receipt in this case) so your Virginia account can be adjusted to match.

Q: Does the Department automatically trust whatever numbers I put on my most recent amended return?
A: Not necessarily -- especially where your filings show conflicting amounts across returns, the Department retains authority to verify which figures are actually correct under the Internal Revenue Code before accepting them.

Citations and references

• Va. Code § 58.1-301 (Virginia income tax terminology/conformity to the Internal Revenue Code)
• Va. Code § 58.1-219 (Department authority to adjust federal adjusted gross income and itemized deductions where clearly inconsistent with the IRC)
• 23 VAC 10-20-180(A)(2) (an amended Virginia return claiming a refund due to a federal taxable income change requires a copy of the Revenue Agent's Report or other appropriate IRS acceptance notice)

Subject

Administration: Returns - Amended, Review and Documentation Requirements

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-90

Original ruling text

May 11, 2022

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 “Taxpayer”) for the taxable year ended December 31, 2016.

FACTS

The Taxpayer filed a Virginia individual income tax return for the 2016 taxable year after the due date without remitting a payment of the tax shown as due on the return. As a result, the Department issued an assessment for the tax due, penalties and interest. The Taxpayer subsequently filed an amended return adjusting her income and changing her deductions from standard to itemized, which eliminated the tax due. When the Taxpayer failed to provide proof that the Internal Revenue Service (the “IRS”) accepted her amended federal return, the Department rejected the amended return and the liability remained payable. The Taxpayer appealed, asserting that the Department must process her amended return. The Taxpayer also requested proof of the Department’s calculations underlying the assessments made for the 2013 and 2017 taxable years, but did not request abatement of the assessments.

DETERMINATION

Virginia Code § 58.1-301 provides, with certain exceptions, that the 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 Chapter 3 of Title 58.1 of the Code of Virginia .

Pursuant to Virginia Code § 58.1-219, the Department retains the authority to adjust the FAGI and itemized deductions where there is clear evidence that the amounts reported on the federal or Virginia income tax return are not consistent with the IRC. As a general rule, the Department relies on the accuracy of information and computations reflected on the federal income tax return when reviewing Virginia individual income tax returns. When a taxpayer files Virginia returns reporting conflicting amounts, however, prudence dictates that the Department verify which amounts are correct under the IRC.

When a taxpayer files an amended Virginia return to claim a refund because of a change in federal taxable income, Title 23 of the Virginia Administrative Code (VAC) § 10-20-180 A 2 requires the taxpayer to provide a copy of the Revenue Agent’s report or other appropriate notice that the change has been accepted by the IRS. Such information essentially certifies a taxpayer’s reported amounts to the Department. To date, the Taxpayer has not provided evidence that the IRS accepted her 2016 amended federal return.

Under these circumstances, I find no basis to abate the assessment. The Taxpayer will receive an updated bill which will include accrued interest to date. The Taxpayer should remit payment of the balance due within 30 days to avoid the accrual of additional interest and possible collections actions.

If the IRS accepts or has accepted the Taxpayer’s amendments, she is instructed to provide a copy of the notice to the Department within sixty days of receipt. Upon receipt for such notice, the Department will adjust the Taxpayer’s account consistent with the IRS computations.

In addition, it is my understanding that representatives of the Department have already provided the information requested with this appeal regarding the 2013 and 2017 taxable years. If the Taxpayer has further questions regarding those years she may contact the Department’s customer satisfaction unit at (804) 786-8083.

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/3970.X