Rulings of the Tax Commissioner

April 5, 2023

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 assessments issued to ***** (the “Taxpayer”) for the taxable years ended December 31, 2009 through 2012 and 2019 through 2021. The Taxpayer also requests refunds of any payments that have been applied towards these assessments.  

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file Virginia individual income tax returns for the 2009, 2010, 2011, and 2012 taxable years. In each case, the Department requested information to verify whether the Taxpayer was subject to Virginia income tax. When no responses were received, the Department issued assessments.

The Taxpayer filed resident Virginia income tax returns for the taxable years ended December 31, 2019 through 2021. The returns reported an income tax liability, but he did not pay the tax due. As such, assessments were issued for these years as well. The assessments issued for the 2009 and 2012 taxable years have been paid in full. Various other payments have been applied to each of the other outstanding assessments, except the assessment for the 2021 taxable year which remains due in full.  

The Taxpayer filed an appeal, contending that the assessments should be abated because he was not a United States citizen, did not receive income from Virginia, and did not contract to pay income tax to Virginia, and because the IRS was not authorized to do business in Virginia. In addition, he requests that any payments be refunded and that he be granted an appeal conference.  

DETERMINATION

Applicable Statutes of Limitation

The Taxpayer’s history of having assessments issued after failing to file returns and filing returns but not paying the reported tax due raises several different issues with respect to statutes of limitations.  Each of these limitations 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 Virginia Code § 58.1-1821 and 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 Taxpayer filed an appeal for the taxable years at issue by letters dated July 26, 2022, and September 28, 2022. Except as to the assessment issued for the 2021 taxable year, however, the 90 day filing deadline had passed.  

Protective Claim

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.

The only assessments that have been paid in full are the ones issued for the 2009 and 2012 taxable years. The assessment for the 2009 taxable year was issued on November 7, 2012 and the assessment for the 2012 taxable year was issued on December 14, 2016. To be timely filed, protective claims were required to be filed by November 7, 2015, for the 2009 taxable year and by December 14, 2019, for the 2012 taxable year. The Taxpayer’s appeal letters were filed on July 26, 2022, and September 28, 2022, well after the three year period expired for filing a protective claim. 

Statute of Limitations for Requesting a Refund

Virginia Code § 58.1-499 A provides that, in the case of any overpayment of any tax, whether by reason of excessive withholding, overestimating and overpaying estimated tax, or error on the part of the taxpayer, the Department shall order a refund of the overpayment. Virginia Code § 58.1-499 D specifies, however, in pertinent part:

No refund under this section... shall be made... whether on discovery by the Department or on written application of the taxpayer, if such discovery is not made or such written application is not received within three years from the last day prescribed by law for the timely filing of the return. . .  [Emphasis added.]

Payments of tax were made by the Taxpayer’s spouse, through offsets, and through collection actions towards assessments for the 2009 through 2012 taxable years and for the 2019 and 2020 taxable years. Only payments of Virginia income tax that were applied to the Taxpayer’s liability for the 2019 and 2020 taxable years are within the three-year limitations period for a refund request.

Conclusion as to Applicable Statutes of Limitations

In accordance with the above analysis, the Taxpayer’s appeal is only timely as to the assessment issued for the 2021 taxable year. In addition, the 2019, 2020, and 2021 taxable years were still within the statute of limitations period to claim a refund. These assessments, however, were based on the Taxpayer’s own reported liability for Virginia income tax, which he did not pay when the returns were filed. The Taxpayer, therefore, is essentially appealing his own tax returns.  

Because it does not appear that the Taxpayer has ever filed amended returns for these years to report a different liability than what he reported on his original returns, the Department can only assume that the liability he reported on the original returns was correct. This response, therefore, will only address the validity of the bases upon which the Taxpayer now asserts he had no liability for Virginia income tax for the 2019 through 2021 taxable years. Further, this response will consider only the issues raised by the Taxpayer at this time. Should the Taxpayer attempt to amend his 2019, 2020, or 2021 Virginia income tax return in any way that is beyond the scope of this response, the Department will review any such amendments on a case-by-case basis and issue separate responses accordingly. As to the issues now raised by the Taxpayer, however, this response should be considered a ruling of the Department.  

Taxability of Income

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. 
  
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, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will enable the Department to determine the resident’s tax liability.  

In addition, the Virginia Supreme Court has held “the power of the State of Virginia to levy taxes is not derived from the Constitution of the United States as interpreted by the Supreme Court. On the contrary, the State has the inherent and unlimited power of taxation unless restrained by its Constitution or the Constitution of the United States.” See Colonial Pipeline Company v. Commonwealth of Virginia, 206 Va. 517, 145 S.E.2d 227 (1965).  

Further, in New York ex rel. Cohn, 300 U.S. 308, 312-313, 57 S.Ct. 466, 467 (1937), the United States Supreme Court explained “[t]hat the receipt of income by a resident of the territory of a taxing sovereignty is a taxable event is universally recognized.” Thus, any resident who has Virginia taxable income as determined under Virginia’s statutes is subject to Virginia income tax.  

The Taxpayer seems to believe he is a nonresident alien and can elect to not file tax returns under IRC § 6013(g)(4)(A). This subsection permits nonresident aliens and their United States resident spouses to elect to treat the nonresident alien as a United States resident for tax purposes. The specific provision cited by the Taxpayer refers to the revocation of such election, but it does not follow that revoking such an election means that a nonresident alien becomes exempt from taxation. Nonresident aliens are still subject to federal income tax on income effectively connected with the conduct of a trade or business carried on in the United States, in addition to being subject to tax on certain income from sources in the United States. See IRC § 871. In any event, a taxpayer’s status as a resident or nonresident alien for federal income tax purposes has no bearing on the determination whether the individual is subject to Virginia income tax as a Virginia resident. See P.D. 16-11 (2/29/2016) and P.D. 21-59 (5/18/2011).  

In this case, the Taxpayer has given no valid factual basis to demonstrate he did not meet the definition of a resident of Virginia under Virginia Code § 58.1-302. As a resident, the Taxpayer was taxable on all of his income regardless of source, to the extent the income was also subject to federal income tax.  The Taxpayer’s argument that he had no contractual obligation to pay tax is without merit. See P.D. 14-84 (6/4/2014), P.D. 14-113 (7/18/2014), and P.D. 19-21 (3/26/2019).  

Further, the Taxpayer’s assertion that the IRS lacks the authority to conduct business in Virginia is erroneous. The IRS is the federal tax collection agency and administers the IRC as enacted by Congress and authorized to promote compliance and collect revenue throughout the United States.  

Appeal Conference

Title 23 VAC 10-20-165 E grants a conference for any taxpayer that timely filed a complete appeal. However, Title 23 VAC 10-20-165 E 4 b provides that the Department will not grant a conference if an administrative appeal is deemed frivolous or for cases in which a taxpayer requests a conference for the purpose of delaying collection action on a valid assessment. As stated above, the Taxpayer’s claims are without merit and, therefore, considered frivolous.    

CONCLUSION

With respect to the assessments issued for the 2009 through 2012 taxable years, the Taxpayer has not timely submitted an appeal or claim for refund. These assessments, therefore, are upheld and remain due and payable to the extent they have not already been paid. Further, the Taxpayer’s claims that he was not subject to Virginia income taxation with respect to the 2019 through 2021 taxable years have no basis in fact or law.  

Accordingly, 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, regulations, and public documents 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/4348.B