July 20, 2021
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 “Taxpayer”) for the taxable year ended December 31, 2018.
FACTS
The Taxpayer filed a Virginia resident income tax return for the 2018 taxable year and claimed itemized deductions. Under audit, the Department requested supporting documentation to substantiate the deductions. When the information was not received, the Department disallowed the deductions, applied the standard deduction and issued an assessment for additional tax and interest. The Taxpayer appeals, contending the itemized deductions should be allowed.
DETERMINATION
Virginia Code § 58.1-301 provides, with certain exceptions, 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. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia. 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). 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.
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. However, the Department retains the authority to adjust the FAGI and itemized deductions where there is clear evidence that the amounts reported on the federal or Virginia income tax return are not consistent with the IRC. See Virginia Code § 58.1-219.
Virginia Code § 58.1-322.03 1 allows an individual to deduct from their Virginia adjusted gross income the amount allowed for itemized deductions for federal income tax purposes. Taxpayers, however, must maintain records sufficient to allow the IRS to determine the correct liability. See Treas. Reg. 1.6001-1(a). Similarly, Virginia Code § 58.1-310 provides:
Whenever in the opinion of the Department it is necessary to examine the federal income returns or any copy thereof of any individual, estate, trust, partnership or corporation in order to properly audit such returns, the Department or the commissioner of the revenue shall have the right to require such taxpayer to provide such return or a copy thereof and all statements, inventories, and schedules in support thereof.
In the Taxpayer’s case, the Department requested information sufficient to confirm the basis of the Taxpayer’s itemized deductions. The Department requested documentation by letters date June 17, 2020, October 19, 2020 and December 10, 2020 and mailed to the return address indicated on the Taxpayer’s appeal. The Taxpayer has failed to provide the requested information.
Pursuant to Virginia Code § 58.1-205 any assessment of tax by the Department is deemed prima facie correct. This means that the burden of proof is upon the Taxpayer to establish that the assessment is incorrect. Further, Virginia Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the erroneous assessment is attributable to the taxpayer’s willful failure or refusal to provide the Department with necessary information as required by law.
Because the Taxpayer has failed to furnish information required by law, I must uphold the Department’s assessment for the 2018 taxable year. I will, however, grant the Taxpayer one more opportunity to provide the information required to substantiate her claim. The documentation must be provided within 30 days from the date of this letter. Please send the additional information to the Department’s Office of Tax Policy, Appeals and Rulings, P.O. Box Richmond, Virginia 23261-7203, Attn: *****.
The information will be reviewed and the assessment will be adjusted as warranted. If the information is not provided within the time allotted, the assessment will be considered to be correct and collections actions will result.
The Code of Virginia sections 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/3594.B