I filed an appeal of old Virginia income tax assessments years late, claiming the 1099s the Department relied on were the result of fraud by the company that issued them -- can the Department still fix my assessments?

Plain-English summary

A Virginia resident failed to file Virginia individual income tax returns for 2014, 2015, and 2017. The Department assessed tax for each year (in May 2018, May 2019, and December 2020, respectively), basing the assessments on federal Form W-2 and Form 1099-MISC income information it obtained from the IRS. The taxpayer didn't file anything disputing these assessments until August 2023 -- years after each one was issued -- arguing he'd been a victim of fraud by whoever issued the 1099-MISC forms. Every path to relief failed.

Path 1: a regular appeal -- filed far too late. Va. Code § 58.1-1821 gives a taxpayer just 90 days from the date of assessment to appeal. Even for the most recent assessment (issued December 31, 2020, for the 2017 tax year), the 90-day window had closed years before the taxpayer's August 2023 filing.

Path 2: a "protective claim" -- also unavailable. A protective claim (Va. Code § 58.1-1824) is a narrower alternative that preserves a taxpayer's right to eventually go to court over a paid assessment, but only if the claim is filed and the assessment is paid in full within three years of the assessment date. Here, neither condition was satisfied: none of the assessments had been paid at all, and even the three-year window for the newest (2017) assessment had already expired by the time of the August 2023 filing.

Path 3 (addressed anyway, for context): no proof of fraud. Even setting the timing problems aside, the Department explained why the underlying assessments were sound. Virginia's income tax starts from federal adjusted gross income, and a Virginia resident who must file a federal return must also file a Virginia one. When someone doesn't file, the Department can obtain the person's income information directly from the IRS (IRC § 6103(d)) and assess tax based on it. The taxpayer's claim that the business issuing his 1099-MISC forms "may have committed fraud" came with no objective evidence -- no documentation, no alternative accounting of his actual income, nothing beyond the bare assertion. Without something to contradict the IRS-reported figures, the Department was entitled to rely on them. (This is the same pattern as this corpus's P.D. 24-106, where an unsupported claim that reported income was really nontaxable failed for the identical reason: an assertion alone, without objective evidence, doesn't overcome IRS-sourced income data.)

Result. The assessments for 2014, 2015, and 2017 remain due and payable in full, with interest continuing to accrue; the Department indicated collection action would resume without prompt payment.

What this means for you

Anyone who receives a Virginia assessment based on unfiled returns

You have only 90 days from the assessment date to file a proper appeal (Va. Code § 58.1-1821) -- act immediately, even if you plan to gather more evidence later. Waiting years, even for a legitimate-sounding dispute, forfeits your right to challenge the assessment through the normal appeals process.

Anyone considering a "protective claim" instead of a timely appeal

A protective claim is not a backup escape hatch for a missed appeal deadline -- it has its OWN strict three-year filing window and requires paying the assessment in full first. If you can't meet both conditions, this route isn't available to you either.

Anyone disputing 1099 or W-2 income the IRS reported to Virginia

A bare claim that the income was fraudulent, mistaken, or shouldn't count won't overcome the Department's reliance on IRS data. Bring objective evidence -- documentation, an accounting of your actual income, or proof you've disputed the figures with the IRS itself.

Common questions

Q: I missed the 90-day deadline to appeal my Virginia assessment -- is there any other way to dispute it?
A: Possibly a protective claim, but only if you file it AND pay the assessment in full, both within three years of the assessment date. If either condition is missed, neither the regular appeal nor the protective claim route is available.

Q: The Department assessed me based on 1099-MISC income I never actually earned as taxable income -- what do I need to show to fix that?
A: Objective evidence -- not just an assertion. Documentation supporting your actual income, or proof that you've successfully disputed the reported amounts with the IRS itself, since the Department is entitled to rely on IRS-reported figures absent something to contradict them.

Q: Does it matter that I didn't file a return in the first place?
A: Yes -- when a Virginia resident with a federal filing obligation doesn't file a Virginia return, the Department can obtain that person's income information directly from the IRS and assess tax accordingly.

Citations and references

Statutes:

• Va. Code § 58.1-1821 -- 90-day deadline to appeal an assessment to the Tax Commissioner
• Va. Code § 58.1-1820 -- an assessment is made when written notice is mailed to the taxpayer's last known address
• Va. Code § 58.1-1824 -- protective claim for refund; requires filing AND full payment within three years of assessment
• Va. Code § 58.1-301 -- Virginia income tax terminology generally conforms to the Internal Revenue Code
• Va. Code § 58.1-341 -- Virginia residents required to file a federal return must also file a Virginia return
• IRC § 6103(d) -- authorizes the Department to obtain taxpayer information from the IRS

Prior rulings the Department relied on (described here, not linked): P.D. 86-224 (11/3/1986) (protective claim requires timely filing and full payment); P.D. 14-33 (3/7/2014) (Department's authority to obtain IRS information for non-filers). This ruling's "no objective evidence overcomes IRS-reported income" holding parallels this corpus's already-enriched P.D. 24-106, which rejected a similarly unsupported claim that IRS-reported payment-app income was really nontaxable.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-86

Original ruling text

September 13, 2024

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 assessments issued to you (the “Taxpayer”) for the taxable years ended December 31, 2014, 2015, and 2017.

FACTS

The Department issued assessments to the Taxpayer in May 2018, May 2019, and December 2020 after he failed to file Virginia individual income tax returns for the 2014, 2015, and 2017 taxable years, respectively. The Taxpayer filed an application for correction of the assessments in August 2023, contending that he was a victim of fraud.

DETERMINATION

Statute of Limitations

The assessments at issue result primarily from the failure to file returns and raise several different issues with respect to statutes of limitation. Each of these limitation periods will be addressed in turn.

Deadlines for Filing Appeals

Virginia Code § 58.1-1821 states, “Any person assessed with any tax administered by the Department of Taxation may, within 90 days from the date of such assessment, apply for relief to the Tax Commissioner. Such application shall be in the form prescribed by the Department and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer’s contention.” Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-20-165, a complete appeal must be filed with the Department within 90 days from the date of assessment. In addition, Virginia Code § 58.1-1820 provides that assessments made by the Department are deemed to be made when a written notice of assessment is mailed to a taxpayer at his last known address.

The most recent assessment, which was for the 2017 taxable year, was issued on December 31, 2020. The Taxpayer filed the present application for correction with the Department in August 2023, well after the 90 day statute of limitations had expired for any of the assessments at issue.

Protective Claims

Virginia Code § 58.1-1824 provides that “[a]ny person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing a claim for refund with the Tax Commissioner. . . within three years of the date such tax was assessed.” Virginia Code § 58.1-1824, therefore, expressly limits the right to file a protective claim to cases in which both the filing of the claim and the payment of the assessment occurred within three years of the assessment. See Public Document (P.D.) 86-224 (11/3/1986). In addition, all assessed taxes, penalties, and accrued interest for the year or years subject to the request must be paid in full before a taxpayer may file a protective claim. See Title 23 VAC 10-20-190 A 1.

To make a protective claim, the last day for payment of any of the assessments at issue was in December 2023, three years after the assessment was issued for the 2017 taxable year. Although the Taxpayer’s application for correction was filed in August 2023, none of the assessments have been paid in full. In addition, the three-year period to file a protective claim for the 2014 or 2015 taxable years had already expired by 2023. As such, the Department is unable to treat the Taxpayer’s application as a timely filed protective claim for refund as to any of the taxable years at issue.

Taxation of Virginia Residents

The statute of limitations issues not withstanding, the Department will explain the basis for the assessments for informational purposes. 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. 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 (VTI) 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 .

Further, 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. When a resident does not file a proper Virginia return, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will help in determining the resident's tax liability. See P.D. 14-33 (3/7/2014).

In this case, it appears that the Taxpayer was a resident of Virginia for each of the taxable years at issue. As such, he would have been subject to Virginia income tax and required to file Virginia resident income tax returns if he had sufficient income to exceed the filing threshold.

Based on the information the Department received from the IRS, the Taxpayer had income reported on both Form W-2 and Form 1099-MISC each year, but most of his income was reported on Forms 1099-MISC. The total amount of income exceeded the filing threshold each year, and the assessments were based on such amounts.

Although the Taxpayer claims that the business that issued him the Forms 1099-MISC may have committed fraud, he has not provided any objective evidence of fraud or otherwise submitted any information that would enable the Department to determine the true amount of income he received. In the absence of such evidence and information, the Department was justified in relying on the information received from the IRS to determine the Taxpayer’s Virginia income tax liability.

CONCLUSION

The Taxpayer failed to timely file an application for correction of the assessments or make a valid protective claim for refund as to any of the taxable years at issue. Even if he had, the Department’s assessments were based on information obtained from the IRS as permitted under Virginia law, and the Taxpayer has not provided any objective evidence that the information was incorrect.

Therefore, the assessments issued for taxable years ended December 31, 2014, 2015, and 2017 remain due and payable. Updated bills will be issued to the Taxpayer, including accrued interest to date. The Taxpayer should remit payment immediately or collections actions will resume.

The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available 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,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4678.Y

Related Documents

86-224

14-33