Tax Type
Individual Income Tax
Description
Taxpayers failed to report the changes on amended returns within allotted time frame.
Topic
Federal Conformity
Statute of Limitations
Date Issued
02-28-2011
February 28, 2011
Re: § 58.1-1821 Application: Individual Income Tax
Dear ****:
This will reply to your letter concerning the Virginia individual income tax assessment issued to ***** (the "Taxpayers") for the taxable years ended December 31, 2005 and 2006.
FACTS
The Taxpayers were audited by the Internal Revenue Service (IRS) for the 2005 and 2006 taxable years. The IRS adjusted the Taxpayers' 2005 and 2006 federal income tax returns, resulting in a change to federal taxable income. The Taxpayers did not file amended 2005 and 2006 Virginia income tax returns reflecting the IRS adjustments. As a result, the Department issued assessments for the 2005 and 2006 taxable years. The Taxpayers appeal the assessments, contending they were not issued within the three-year limitations period.
DETERMINATION
Virginia Code § 58.1-104 generally requires the Department to make an assessment of underpaid tax within three years from the last day prescribed by law for the timely filing of the return. Virginia law, however, provides, an exception to the three-year statute of limitations for assessing tax when an individual fails to report a change or correction in federal taxable income.
Virginia Code § 58.1-311 requires any individual to report a change or correction in federal taxable income within one year of the final determination of such change or correction by filing an amended return with the Department. If the taxpayer fails to file an amended return, Va. Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time.
In this case, the IRS adjusted the Taxpayers' 2005 FAGI in August 2008 and their 2006 FAGI in October 2008. The Taxpayers failed to report the changes on amended returns within the limitations periods as required in Va. Code §§ 58.1-311. As such, the Department properly issued the assessments within the time permitted under Va. Code § 58.1-312.
Accordingly, the assessments for the 2005 and 2006 taxable years are correct. An updated bill, with interest accrued to date, will be sent to the Taxpayers. No additional interest will accrue provided the outstanding balance in paid within 30 days from the date of the revised bill.
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 about this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-4500409450.B
Rulings of the Tax Commissioner