December 8, 2015
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessments issued to ***** (the "Taxpayers") for the taxable year ended December 31, 2010 and 2011. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayers, a husband and wife, have resided in Virginia since 1990. The Taxpayers filed Virginia part-year resident individual income tax returns for taxable years 2010 and 2011. While the wife's income was attributable entirely to Virginia, the income earned by the husband from services performed outside of the United States was excluded. Under audit, the Department changed the Taxpayers' return type to a full-year resident return, recalculated the Taxpayers' Virginia taxable income and issued an assessment for additional tax and interest.
The Taxpayers appeal the assessment, contending the wife remained in Virginia while the husband worked abroad. The Taxpayers request abatement of the assessed penalty and interest if the Department upholds the tax assessment.
DETERMINATION
Domicile
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. Code § 58.1-302. The domiciliary residence of a person means the permanent place of residence of a taxpayer and the place to which he intends to return even though he may reside elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon his Virginia domicile with no intention of returning to Virginia. Concurrently, that person must acquire a new domicile where that person is physically present with the intention to remain there permanently or indefinitely. An actual resident of Virginia means a person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia. A Virginia domiciliary resident, therefore, working in other parts of the country or in another country who has not abandoned his Virginia residency continues to be subject to Virginia taxation. Additionally, a person who is not a domiciliary resident of Virginia, but who stays in Virginia for an aggregate of more than 183 days is also subject to Virginia taxation.
In order to change from one legal domicile to another legal domicile, there must be (1) actual abandonment of the old domicile, coupled with an intent not to return to it, and (2) an acquisition of a new domicile at another place, which must be formed by personal presence and an intent to remain there permanently or indefinitely. The burden of proving that the domicile has been changed lies with the person alleging the change.
In determining domicile, consideration may be given to the individual's expressed intent, conduct, and all attendant circumstances including, but not limited to, financial independence, profession or employment, income sources, residence of spouse, marital status, sites of real and tangible property, motor vehicle registration and licensing, and such other factors as may be reasonably deemed necessary to determine the person's domicile. A person's true intention must be determined with reference to all the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency.
The Department determines a taxpayer's intent through the information provided. A taxpayer has the burden of proving that he or she has abandoned his or her Virginia domicile. If the information is inadequate to meet this burden, the Tax Commissioner must conclude that he or she intended to remain indefinitely in Virginia.
While the husband lived and worked outside of Virginia for a significant portion of the year, he maintained significant connections within Virginia. The husband maintained a permanent place of abode where the wife continued to be a permanent resident. He registered motor vehicles and continued other domiciliary factors within Virginia since 1990. For example, the Taxpayers acknowledge that the husband retained his Virginia driver's license for use when he would return to Virginia. As indicated above, in order for the husband to have established domicile in another country, there must be personal presence with the intent to remain there permanently or indefinitely.
Further, in considering employment as it relates to an individual's domicile, the Department has analyzed whether a specific employment contract was established permanently or for an indefinite period of time. See Public Document (P.D.) 99-158 (6/21/1999). In the case of individuals who engage in employment under set term contracts, the Department has ruled that such individuals generally lack the intent to abandon their Virginia domicile based on the temporary nature of the activity. See P.D. 86-219 (11/3/1986), P.D. 94-353 (11/23/1994), P.D. 96-207 (8/26/1996), P.D. 02-33 (3/13/2002), P.D. 05-8 (2/1/2005), and P.D. 10-134 (7/12/2010). In P.D. 01-161 (10/23/2001), the Department held, however, that a taxpayer that takes sufficient actions to abandon his Virginia domicile can be considered to have established a new domicile even though he was temporarily employed for a definite period of time. In this case, no evidence has been presented to show that the husband intended to abandon his Virginia domicile permanently.
Abatement of Penalty and Interest
The Taxpayers request abatement of penalty and interest accrued on the assessment. The Taxpayers state that their return was prepared by a tax professional and they relied on his expertise.
Virginia Code § 58.1-105 grants the Department authority to waive penalty for reasonable cause. However, in a situation where a taxpayer relies on an accountant, lawyer, or tax preparer, and the accountant, lawyer, or tax preparer provides inaccurate or erroneous advice that results in a penalty, the taxpayer has recourse against the accountant, lawyer, or tax preparer for the error. The Department will not consider such circumstances as reasonable cause to waive a penalty. See P.D. 08-69 (5/22/2008).
In the matter of interest, the application of interest to tax underpayments is mandatory under Va. Code § 58.1-1812 and it cannot be waived unless the associated tax is adjusted. Interest is not assessed as a penalty of noncompliance with the law. Rather, it represents a fee for the use of money that was properly due to the Commonwealth.
Written Advice
Finally, the Taxpayers assert that their preparer called the Department concerning their filing requirement and was advised by the Department staff that they should file a Virginia part-year return. Virginia Code § 58.1-1835 authorizes the Department to abate an assessment or a portion of an assessment that is attributable to erroneous advise furnished to the taxpayer in writing by an employee of the Department, acting in his official capacity.
In this case, the Department provided advice by telephone, not in writing. Furthermore, the advice may have been appropriate based on the facts presented during that phone conversation. As such, the Department is not required to abate the assessment based on the assertion of erroneous telephonic advice.
CONCLUSION
Based on the foregoing, the assessments are upheld. The Taxpayers paid the assessments in full and no additional action is required.
The Code of Virginia sections, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5903986726.D