06-5 | Virginia Tax

Tax Type

Individual Income Tax

Description

Failure to file Virginia income tax

Topic

Penalties and Interest

Persons Subject to Tax

Date Issued

01-11-2006

January 11, 2006

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 assessments issued to ***** (the "Taxpayers") for the taxable years ended December 31, 1998, 1999 and 2001. I apologize for the delay in responding to your letter.

FACTS

The Taxpayers are Virginia residents. The Department obtained information from the Internal Revenue Service ("IRS") indicating that the Taxpayers received taxable income for the 1998, 1999 and 2001 taxable years. The Department requested that the Taxpayers file the proper Virginia returns or provide an explanation concerning why their income was not taxable. The Taxpayers filed individual income tax returns for the 1997 through 2004 taxable years reporting no federal adjusted gross income. Because an adequate response was not received, assessments were issued based on the available information.

The Taxpayers contend that: (1) they did not have federal adjusted gross income, (2) they were not paid "wages," (3) their employers are not "employers," but "payors," and (4) they were not "employees" as defined in the Internal Revenue Code ("IRC"). Consequently, the Taxpayers believe that they are not required to file federal or Virginia income tax returns.

DETERMINATION

Tax Liability

Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia 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 Va. Code § 58.1-322.

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 Va. Code § 58.1-321. 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. Additionally, even if a resident is not required to file a federal return but has sufficient Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia income tax return pursuant to Va. Code § 58.1-341.

Pursuant to Va. Code § 58.1-111, the Department has the authority to estimate the amount of taxes due when a taxpayer fails to file a valid state tax return. Virginia Code § 58.1-312 further provides that an assessment can be issued at any time if a return is not filed.

A review of the information available does not indicate that the Taxpayers dispute receiving the income reported to the Department by the IRS. Instead, they claim that they do not get paid "wages," they are not employees, the payor of the income is not an "employer," and the requirement for withholding does not apply to them. The Taxpayers state that they did not file a federal Form 1040 because they are claiming a refund and did not have any taxable income that they are legally required to report. They also state that they do not claim that their income is not subject to Virginia income tax.

The claim that income from employment is not subject to Virginia taxation has no basis in fact or Virginia law. Further, 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 Va. Code § 58.1-308.

Disclosure

The Taxpayers contend that the Department illegally disclosed personal and private tax return information obtained under IRC § 6103(d) to a collection agency under contract to the Department to collect delinquent assessments. I do not agree.

Internal Revenue Code § 6103(d) authorizes the Department to obtain information from the IRS that will help in determining an individual's state tax liability. The Department contracts with private collection agencies for delinquent account collection services. As with Department employees, external collection personnel are subject to confidentiality requirements.

External collection agencies do not have access to information obtained under IRC § 6013(d). The account information provided to the collectors is limited to Department records related to the amount and period of the assessments and tax roll data necessary for an agency to contact a taxpayer. Taxpayers contesting assessments based on IRS information are referred to the Department.

CONCLUSION

Virginia Code § 58.1-205 provides that any assessment of a tax by the Department shall be deemed prima facie correct. The Taxpayers have not shown that the assessments issued by the Department or the information provided by the IRS is incorrect. Further, they have failed to provide objective evidence as to the correct liability for the taxable years at issue. Consequently, I find no basis to abate the Virginia individual income tax assessments for the 1997 through the 2004 taxable years. A schedule is enclosed showing the balance of the assessments.

Further, the Taxpayers are requested to file accurate Virginia individual income tax returns, along with payment of the balance due, within 30 days from the date of this letter for the 1997 through 2004 taxable years, along with any other delinquent income tax returns or income tax returns filed based on the claims set forth in the application for correction. Refusal to file the requested returns or any future returns in accordance with Virginia law by continuing to make the claims you have stated in your letter would justify the 100% fraud penalty and other legal actions to collect the proper tax.

Returns and payments should be sent to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23261-7203, Attention: *************************.

- The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, you may contact ***** at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/55724E

Rulings of the Tax Commissioner