Tax Type
Individual Income Tax
Description
Intent to evade tax subject to a 100% fraud penalty
Topic
Penalties and Interest
Persons Subject to Tax
Returns/Payments/Records
Date Issued
04-05-2002
April 5, 2002
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letters regarding your Virginia individual income tax returns for the 1996, 1997 and 1998 taxable years. Because of the circumstances involved, I am treating your letters as an appeal pursuant to Code of Virginia § 58.1-1821. I apologize for the delay in responding to your letters.
FACTS
You are Virginia residents who received wages from employment. You contend that your wages are not "gross income" for federal income tax purposes. Consequently, you state that you are not subject to Virginia income tax. You have filed returns for the 1996, 1997 and 1998 taxable years and are requesting a refund of taxes withheld for those years.
DETERMINATION
Code of Virginia § 58.1-301 provides that 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 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.
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 under Code of Virginia § 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 income tax return.
Your claim that your "wages" are not considered "gross income" has no basis in fact or Virginia law. A person who fails to file income tax returns based solely on such a claim has intentionally understated his or her income tax liability with the intent to evade tax and would be subject to a 100% fraud penalty pursuant to Code of Virginia § 58.1-308. Furthermore, one who files an application for correction pursuant to Code of Virginia § 58.1-1821 based solely on such claims has no purpose other than to hinder and delay collection of the proper tax liability. Consequently, collection activity need not be suspended on outstanding assessments while such applications for correction are being considered.
Based on the information presented, there is no basis to issue a refund of Virginia income taxes withheld for the 1996, 1997 and 1998 taxable years. You are required to file Virginia individual income tax returns for all subsequent taxable years in accordance with Virginia law. Your refusal to file returns in accordance with Virginia law will justify the 100% fraud penalty and other legal actions to collect the proper tax.
Copies of the Code of Virginia and IRC cited are included for reference purposes. Other reference documents are also available online in the Tax Policy section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have further questions regarding this matter, you may contact ***** in the department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/25727P
Rulings of the Tax Commissioner