April 5, 2022
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 assessment issued to ***** (the “Taxpayer”) for the taxable year ended December 31, 2018.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia income tax return for the 2018 taxable year. A review of the Department’s records showed that the he had not filed a return. The Department requested additional information from the Taxpayer in order to determine if his income was taxable in Virginia. Based on the information provided, the Department concluded that the Taxpayer was liable for Virginia income tax for the 2018 taxable year and issued an assessment. The Taxpayer appealed, contending that the liability resulted from overpayments from prior taxable years being refunded rather than credited to subsequent taxable years.
DETERMINATION
Overpayment Credits
Under Virginia Code § 58.1-341 a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Virginia Code § 58.1-321. The Taxpayers filed their 2013 through 2015 returns almost three years after the statutory due date. As a result of the lateness of the returns and timing of estimated payments made by the Taxpayers, the Department’s accounting system only credited a portion of the overpayments to subsequent years and issued refund checks for the balance of the overpayments along with refund interest. These refund checks were cashed by the Taxpayers.
The Department considers a refund and overpayment credit as being functionally equivalent. See Public Document (P.D.) 16-82 (9/16/2016). Because the Department has already issued refunds, crediting the Taxpayers’ accounts for the full amount of the overpayments would result in the Taxpayers receiving a double benefit. As a result, no overpayment credit from the previous taxable year is available to reduce the 2018 liability.
Nonfiler Assessment
In this case, the assessment was issued to the Taxpayer because a 2018 Virginia return has not been filed. Virginia Code § 58.1-341 A requires that a taxpayer file an individual income tax return by May 1 of the year following the tax year for which the return is filed. When a resident does not file a proper Virginia return, Internal Revenue Code (IRC) § 6103(d) authorizes the Department to obtain information from the IRS that will help in determining the resident’s tax liability. See P.D. 14-33 (3/7/2014).
The Department’s records indicate that the Taxpayer had taxable income reported to the IRS for the 2018 taxable year. As a Virginia resident, any income he received that year that was taxable for federal income tax purposes would also have been generally subject to Virginia income tax. When a Virginia resident fails to file an income tax prescribed by law, Virginia Code § 58.1-111 permits the Department to make an estimate of the amount of taxes due from any information in its possession and issue an assessment to the taxpayer.
In addition, Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws of Virginia, an “assessment of a tax by the Department shall be deemed prima facie correct.” As such, the 2018 assessment will be considered correct unless the Taxpayer provides information demonstrating whether and to what extent it is not.
While the Taxpayer does not dispute that he was a Virginia resident, he may be able to demonstrate that the Department’s computation of his income tax liability is imprecise. Accordingly, in order for the Department to have the best information that represents the Taxpayer’s Virginia income tax liability for the 2018 taxable year, the Taxpayer should file a 2018 Virginia resident individual income tax return. The return should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *****. Upon receipt, the return will be reviewed and the assessment will be adjusted, as appropriate. If the return is not received within the allotted time, the assessment will be considered correct.
The Code of Virginia sections and public document 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/3973.B