Document Number
10-77
Tax Type
Individual Income Tax
Description
Reliance on the federal return when reviewing Virginia individual tax returns
Topic
Federal Conformity
Returns and Payments
Date Issued
05-18-2010


May 18, 2010



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, 1999 through 2005. 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 the Taxpayers received taxable income for the 1999 through 2005 taxable years and further, that the Taxpayers had failed to file federal individual income tax returns. The Department requested that the Taxpayers file the appropriate Virginia individual income tax returns or provide an explanation concerning the taxable status of that income.

In response, the Taxpayers filed Virginia returns but the Department was unable to verify their accuracy. Because sufficient documentation to support the income and deductions reported was not provided, assessments were issued. The Taxpayers appeal the assessments, contending the Virginia returns they filed accurately reported their Virginia income.

DETERMINATION


Virginia Code § 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).

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. 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.

As a general rule, the Department relies on the accuracy of information and computations reflected on the federal income tax return when reviewing Virginia individual income tax returns. If the information provided on the federal return looks reasonable, there is generally no reason to look behind those computations. The Department, however, retains the authority to adjust FAGI where there is clear evidence that the amounts reported on the federal or Virginia income tax return are not consistent with the IRC. See Va. Code § 58.1-219.

In the instant case, the Taxpayers were contacted concerning delinquent Virginia income tax returns. When the delinquent Virginia returns were ultimately filed, the Department requested documentation from the Taxpayers to verify the information reported on the returns. Assessments were issued based on the information at hand when sufficient documentation was not provided.

During the course of this appeal, the Department has been able to verify that the Taxpayers filed federal income tax returns or the IRS generated return information for the taxable years at issue. The return information provided by the IRS is consistent with the Virginia returns provided to the Department by the Taxpayers for the 1999 through 2003 taxable years.

Based on the Department's analysis of the federal returns and the facts of this case, the Taxpayers' Virginia returns for the 1999 through 2003 taxable years will be accepted as filed. The assessments for these taxable years will be adjusted accordingly.

The Taxpayers' 2004 and 2005 Virginia returns, however, do not match the IRS records. The assessments for these taxable years will be adjusted to reflect the IRS information. Accordingly, this case will be returned to the auditor to make the above adjustments.

The Taxpayers should be aware that should the IRS make any changes to their federal income tax return affecting federal taxable income reported on that return, Va. Code § 58.1-311 requires that they report the change to the Department within one year after the final determination of such change or correction.

The Code of Virginia sections cited, along with other reference documents, 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 about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
                • Sincerely,

                • Janie E. Bowen
                  Tax Commissioner



AR/1-2342935409.B


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46