Document Number
21-15
Tax Type
Individual Income Tax
Description
Residency : Part year - Income Allocation; Administration: Interest - Accrual; Administration : Reliance on Tax Preparer - Tax Preparation Software
Topic
Appeals
Date Issued
02-16-2021

February 16, 2021

Re:  § 58.1-1821 Appeal: Individual Income Tax

Dear *****: 

This will respond to your letter in which you seek correction of the individual income tax assessment issued to ***** (the “Taxpayers”) for the taxable year ended December 31, 2017. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayers moved to Virginia and filed a joint part-year resident individual income tax return for the 2017 taxable year. The Taxpayers did not allocate any of their retirement income to their period of residency in Virginia. Under audit, the Department determined that some of their retirement income was received after the Taxpayers became Virginia residents. The Department issued an assessment for the increased tax liability plus interest. The Taxpayers appeal, contending that they used tax preparation software to prepare their returns, they declared their retirement income on their returns, they did not permanently move to Virginia until March 31, and they believe the interest is excessive. 

DETERMINATION

Tax Preparation Software

The Taxpayers’ appeal states that they input their income information into a tax preparation software that completes their state and federal tax returns for them. The Department recognizes that tax preparation software is commonly used by tax professionals and individuals for tax return completion. The fact that a particular software program has been approved by the Department, however, is not meant to imply computational accuracy. Software presented to the Department for approval is reviewed to test conformity to the Department’s processing requirements. The Department provides test case specifications, but does not guarantee computational accuracy of the software. See Public Document (P.D.) 13-50 (4/24/2013).

Part-Year Residency

Virginia Code § 58.1-303 provides that any person who becomes a resident of Virginia during a taxable year shall be taxable as a resident for only that portion of the taxable year during which that person was a resident of the Commonwealth. Title 23 of the Virginia Administrative Code (VAC) 10-110-40 further explains that the Virginia taxable income of a part-year resident shall be computed by determining income, deductions, subtractions, additions, and modifications attributable to the period of residence in Virginia. As such, any person who becomes a Virginia resident during a taxable year must apportion their income between their period of residence in and outside of Virginia on a Virginia Schedule of Income filed with their return.

The Taxpayers provided their Virginia and ***** (State A) income tax returns, which both reflected a change of residence to Virginia on February 1. Along with their Virginia return, the Taxpayers provided a Virginia Schedule of Income, which apportioned all of their retirement income to their period of residence outside of Virginia. The Department determined that the retirement income was received monthly and that all of the income received on or after February 1 should have been allocated to their period of residence in Virginia and included in their Virginia taxable income (VTI). 

In their appeal, the Taxpayers assert that their retirement income was declared on their return. While it is true that the Taxpayers disclosed the retirement income on their Virginia return, they did not allocate any of the income to their period of residence in Virginia, which excluded the entire amount from their VTI. The Taxpayers also assert that they did not move permanently to Virginia until March 31. As described above, this is inconsistent with what the Taxpayers self-reported on their State A and Virginia returns.

Interest

The application of interest to tax underpayments is mandatory pursuant to Virginia Code § 58.1-1812, and it cannot be waived unless the associated tax is adjusted. Interest is not assessed as a penalty, but represents a fee for the use of money that was properly due to the Commonwealth. As such, the Department finds no basis for abating any portion of the assessed interest. 

The Taxpayers contend that the interest is excessive when considering that they just received the assessment recently. It should be noted that interest is accrued from the date that a tax liability was originally due and not from the date that an assessment is issued. 

CONCLUSION

The Taxpayers did not allocate any of their retirement income to their period of residence in Virginia for the 2017 taxable year. Because the Taxpayers received some of their retirement income after they established residence in Virginia, the Department was correct to adjust the Taxpayers’ return to include the additional income. 

On both their Virginia and State A income tax returns, the Taxpayers self-reported that they changed their residence from State A to Virginia beginning on February 1. The Department was correct in using that date to determine the amount of income the Taxpayers received while Virginia residents. If the Taxpayers continue to dispute the date, they may file an amended return for the 2017 taxable year and provided supporting documentation showing that the date is incorrect and allocating the retirement income to Virginia in accordance with this determination. 

Accordingly, the assessment at issue is upheld. The Taxpayers will received an updated bill, which will include accrued interest to date. The Taxpayers should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest.

The Code of Virginia sections, regulation, and public document cited are available online at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s website. 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/3328.C

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Last Updated 04/09/2021 14:00