March 23, 2021
Re: § 58.1-1821 Appeal: Individual Income Tax
Dear *****:
This will respond to your letter in which you contest the individual income tax assessment issued to ***** (the “Taxpayers”) for the taxable year ended December 31, 2013, and offer to settle any potential liability.
FACTS
The Internal Revenue Service (IRS) informed the Department that it adjusted the Taxpayers’ 2013 federal income tax return. The Department did not receive an amended 2013 Virginia income tax return reflecting the changes made by the IRS, and an assessment was issued. The Taxpayers appeal the assessment, contending that the assessment was not issued in a timely manner, and suggesting that the Department settle or cancel any potential liability.
DETERMINATION
Statute of Limitations
Virginia Code § 58.1-301 provides, with certain exceptions, that the 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 (VTI) with Federal Adjusted Gross Income (FAGI). Income properly 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 Chapter 3 of Title 58.1 of the Code of Virginia.
Virginia Code § 58.1-311 requires taxpayers to report a change or correction made to their federal taxable income within one year of the final determination of any such change or correction by filing an amended return with the Department. If a taxpayer fails to file an amended return, Virginia Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time.
In addition, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will assist in determining any additional tax liability. In this case, information obtained by the Department indicates that the Taxpayers’ FAGI was increased.
Where the IRS has audited the federal taxable income of a taxpayer, the Department does not look behind the IRS’s final determination. See Public Document (P.D.) 11-107 (6/14/2011). The Department issued several letters notifying the Taxpayers of the change and providing further instructions to the Taxpayers. When no response was received, the Department adjusted the Taxpayers’ 2013 return based on the federal information available from the IRS.
In their appeal, the Taxpayers assert that the timing of the assessment is improper. However, the Taxpayers have provided no factual or legal support for their position. Therefore, I find no basis to revise the assessment.
Offer in Compromise
Virginia Code § 58.1-105 grants the Department the authority to settle doubtful or disputed claims of tax liability where reasonable cause is demonstrated. The Taxpayers have offered to settle any liability in exchange for *****. In this case, the IRS corrected the Taxpayers’ income, the Taxpayers failed to report the change as required by Virginia law, and the Department issued an assessment in accordance with Virginia Code § 58.1-312. Because the assessment is not in doubt, the Department finds no basis for settling the Taxpayers’ liability.
An updated bill with accrued interest to date will be mailed to the Taxpayers shortly. The Taxpayers should remit the balance due within 30 days of the date on the bill to avoid the accrual of additional interest.
If the assessment creates a financial hardship, the Taxpayers may (1) request a payment agreement with the Department’s Collections Unit, which can be reached at *****, or (2) request an offer in compromise based on doubtful collectability by completing the enclosed Offer in Compromise Form and Financial Information Statement and following the corresponding instructions.
The Code of Virginia sections 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/3662-C