May 26, 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, 2017.
FACTS
The Taxpayer was audited by the Internal Revenue Service (IRS) for the 2017 taxable year. The Department subsequently received information from IRS indicating that the Taxpayer failed to include all her income in federal adjusted gross income (FAGI) on her federal return. Because the Taxpayer had not filed an amended Virginia income tax return to report the federal changes, an assessment was issued for the additional tax due. The Taxpayer filed an appeal, requesting confirmation that her adjusted Virginia income tax return accurately reflected the IRS audit and a waiver of accrued interest.
DETERMINATION
Federal Changes
Virginia Code § 58.1-311 requires any individual to report a change or correction in federal taxable income within one year of the final determination of such change or correction by filing an amended return with the Department. If the taxpayer fails to file an amended return reflecting the federal adjustment, Virginia Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time.
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 (6/14/2001). The Department adjusted the Taxpayer’s 2017 return based on the federal information available from the IRS as permitted by Virginia statute. In addition, the amount of the adjustment was confirmed by means of an IRS account transcript. As such, the 2017 assessment is correct.
Interest on Assessments
The application of interest to tax underpayments is mandatory under Virginia Code § 58.1-1812, and it cannot be waived unless the associated tax is adjusted. Interest is not assessed as a penalty, but represents a fee for the use of money that was properly due the Commonwealth. As such, the Department finds no basis for abating any portion of the assessed interest.
The Taxpayer will receive an updated bill that will include accrued interest to date. The Taxpayer should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collection actions.
If the IRS adjusts its audit findings for the 2017 taxable year, the Taxpayer will be permitted to file an amended return to correct her 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 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/4097.X