Tax Type
Individual Income Tax
Description
Limited data hinders dispute of IRS Federal Adjusted Gross Income Amount
Topic
Basis of Tax
Date Issued
12-04-2001
December 4, 2001
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****
This will reply to your letter in which you seek correction of the Virginia individual income tax assessment issued to your client, ***** (the "Taxpayer") for the 1997 taxable year.
FACTS
The Taxpayer is a Virginia resident who failed to file a Virginia income tax return for the 1997 taxable year. The department received information from the Internal Revenue Service ("IRS") regarding the Taxpayer's federal adjusted gross income ("FAGI") for the 1997 taxable year. After attempting to get the Taxpayer to file a Virginia return, the department issued an assessment based on the federal information.
During the 1997 taxable year, the Taxpayer sold a large amount of securities. You contend that the FAGI information received by the department is based on the gross proceeds of the securities. You, therefore, contest the department's assessment asserting that the information provided by the IRS overstates the Taxpayer's FAGI. You believe that FAGI should be adjusted to reflect only the Taxpayer's net gain on sales of the securities.
DETERMINATION
Virginia's conformity to federal law is set forth in Code of Virginia § 58.1-301, which provides the terms used in the Virginia income tax statutes will have the same meaning as used in the Internal Revenue Code ("IRC"). Therefore, FAGI is the starting point for determining Virginia taxable income for individuals. IRC § 61(a)(1) clearly sets forth certain types of income, such as wages and gains derived from dealings in property. Such income 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 Code of Virginia § 58.1-322. Proceeds from the Taxpayer's sale of his securities are subject to taxation by Virginia to the extent that they are included in his FAGI.
Code of Virginia § 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. When a resident does not file a Virginia return, IRC § 6103 (d) authorizes the department to obtain information from the IRS that will help in determining the resident's tax liability. Because the Taxpayer did not file a Virginia income tax return for the 1997 taxable year, the department used the FAGI as reported by the IRS to determine his Virginia taxable income.
You contend that the reported FAGI was overstated because it did not reduce the gross proceeds from the sale of the securities by the Taxpayer's basis. The Taxpayer has provided brokerage statements that show the basis for some of the securities at issue. However, this evidence is not sufficient to refute the FAGI reported by the IRS. As such, the department's assessment of tax, penalty and interest for the 1997 taxable year is upheld.
The department will, however, review any additional information you can provide which substantiates your claim, providing we receive it within 30 days from the date of this letter. Otherwise, the Taxpayer should remit payment of ***** tax, ***** penalty, and ***** updated interest) within 30 days to avoid the accrual of additional interest. Please send the payment or the additional information to the department's Office of Policy and Administration, Appeals and Rulings, P.O. Box 1880, Richmond, Virginia 23218-1880, Attn.: *****. If you have any questions regarding this determination, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/33078B
Rulings of the Tax Commissioner