VA P.D. 24-52 Individual Income Tax 2024-05-22

The IRS adjusted my federal return and I think the IRS got it wrong -- can Virginia hold off on assessing me while I keep fighting the IRS?

Short answer: No -- the assessment was upheld. The IRS notified the Department that it had adjusted a taxpayer's 2019 federal return (reducing her itemized deductions after a 2022 examination), and because no amended Virginia return had been filed to report the change (Va. Code § 58.1-311), the Department assessed additional Virginia tax. The taxpayer argued the IRS adjustment was wrong and that she was still trying to get it reversed. But because Virginia's individual income tax starts from federal adjusted gross income and conforms to federal law, and because the Department's settled practice is not to look behind a completed IRS determination (P.D. 11-107), the Department had no basis to abate the assessment while the IRS's adjustment stood unchanged. The taxpayer isn't shut out permanently, though: if the IRS itself ever revises its own audit findings for 2019, she can file an amended Virginia return at that point to correct her liability.

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This page answers the general question as of 2024. Ezel answers yours, under current Virginia tax law, with citations.

Disclaimer: This is an official published Ruling of the Virginia Tax Commissioner (Virginia Department of Taxation), issued as a redacted public document resolving one taxpayer's appeal. It is based on the specific facts the taxpayer presented and the law in effect when issued; different facts or later changes in the law can change the result, and another taxpayer should not assume it applies to their situation. This summary is informational only and is not legal or tax advice. Consult a licensed Virginia tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

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Plain-English summary

The IRS notified the Department that it had adjusted a taxpayer's 2019 federal income tax return -- specifically, decreasing her itemized deductions after a 2022 IRS examination. Because the Department had no record of an amended Virginia return reporting that change, it assessed additional Virginia tax. The taxpayer sought correction, contending the IRS's adjustment itself was wrong and that she was still working to get the IRS to reverse it.

Virginia doesn't pause for a taxpayer's ongoing fight with the IRS. Virginia's individual income tax starts from federal adjusted gross income (FAGI) and generally conforms to federal terminology and determinations (Va. Code § 58.1-301). A taxpayer must report a federal change within one year of the final determination by filing an amended Virginia return (§ 58.1-311); failing that, the Department may assess the additional tax at any time (§ 58.1-312 A 3). The Department learned of this particular adjustment through its authority under IRC § 6103(d) to obtain information directly from the IRS. Because the IRS had not itself reversed or changed its adjustment, and because the Department's established practice is not to look behind a completed IRS determination (P.D. 11-107), there was no basis to grant the requested correction while the taxpayer's dispute with the IRS remained unresolved in her favor.

Outcome, with a door left open. The Department found no basis to abate the assessment; records showed it had already been paid in full, so no further action was required. But if the IRS ever does adjust its own audit findings for 2019, the taxpayer can then file an amended Virginia return to correct her Virginia liability under Va. Code §§ 58.1-311 and 58.1-1823.

What this means for you

Anyone disputing an IRS adjustment that Virginia has already assessed tax on

Fight the underlying number with the IRS, not the Department -- Virginia will not hold off on assessing, or look behind, an IRS determination that hasn't itself been changed. If you eventually win your IRS dispute, that revised IRS determination is your path to correcting the Virginia assessment too.

Anyone who gets an IRS adjustment notice

File the required amended Virginia return within one year of the IRS's final determination. If you don't, the Department can assess the additional tax based on the IRS's numbers at any time, without a limitations-period shield.

Common questions

Q: I'm still disputing an IRS adjustment -- will Virginia wait until that's resolved before assessing tax?
A: No. The Department applies the IRS's adjustment as it currently stands and does not look behind it while it's unreversed, even if you're actively contesting it with the IRS.

Q: What if I eventually get the IRS to change its determination?
A: You can then file an amended Virginia return to correct your Virginia liability, per Va. Code §§ 58.1-311 and 58.1-1823.

Citations and references

Statutes:

Va. Code § 58.1-301 -- Virginia income tax terminology conforms to the Internal Revenue Code unless a different meaning is clearly required
Va. Code § 58.1-311 -- a taxpayer must report a federal change/correction within one year by filing an amended Virginia return
Va. Code § 58.1-312 A 3 -- the Department may assess tax at any time if the taxpayer fails to file the required amended return
IRC § 6103(d) -- authorizes the Department to obtain taxpayer information from the IRS

Authorities the Department relied on (described here, not linked): P.D. 11-107 (6/14/2011) -- the Department does not look behind a completed IRS audit determination, the same doctrine applied at greater length in this corpus's P.D. 24-113 and P.D. 25-16.

Source

Landing page: Virginia Laws, Rules & Decisions
Ruling: P.D. 24-52

Original ruling text

May 22, 2024

Re: § 58.1-1821 Application: 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, 2019.

FACTS

The Internal Revenue Service (IRS) notified the Department that it adjusted the Taxpayer’s 2019 federal income tax return. Because the Department had no record of having received an amended Virginia income tax return to report the federal change, an assessment was issued for additional tax due. The Taxpayer filed an application for correction, contending the IRS change was incorrect.

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 .

Virginia Code § 58.1-311 requires taxpayers to report a change or correction made to their federal taxable income within one year of the final determination of any such change or correction by filing an amended return with the Department. If a taxpayer fails to file an amended return, Virginia Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time.

In addition, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will assist in determining any additional tax liability. In this case, the information obtained by the Department indicated that the Taxpayer’s itemized deductions were decreased due to an IRS examination performed in 2022.

The Taxpayer asserts that the IRS adjustment was in error and that she has been attempting to reverse the determination. The IRS, however, has not made any changes to its adjustment. Where the IRS has audited the federal taxable income of a taxpayer, the Department does not look behind the IRS’s final determination. See Public Document (P.D.) 11-107 (6/14/2011).

Under these circumstances, I find no basis to abate the assessment. According to the Department’s records, the assessment has been paid in full and no further action is required. If the IRS adjusts its audit findings for the 2019 taxable year, the Taxpayer will be permitted to file an amended Virginia return to correct the liability pursuant to Virginia Code § 58.1-311 and Virginia Code § 58.1-1823.

The Code of Virginia sections and public document 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 (804) ***.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4797.X

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