Tax Type
Individual Income Tax
Description
State/Federal Tax Information Exchange Agreement
Topic
Appropriateness of Audit Methodology
Computation of Tax
Penalties and Interest
Returns/Payments/Records
Date Issued
04-09-1982
April 9, 1982
Re: § 58-1118 Application: Individual Income Tax
Assessments for Tax Years 1974, 1975, 1976 and 1977
Dear ******************
Reference is made to your February 23, 1981 letter, the hearing held in Richmond on July 31, 1981 and other correspondence pertaining to assessments for additional individual income tax for 1974, 1975, 1976 and 1977.
Facts
On July 18, 1979, the department issued additional individual income tax assessments for 1974, 1975, 1976 and 1977. The assessments were the result of audit abstract information received by the department from the Internal Revenue Service under the State/Federal Tax Information Exchange Agreement. Our records do not show that you reported these changes to the department. In your correspondence, you state that the department's assessments are based "on a compromise worked out with the Federal Government to avoid further litigation." Additionally, you state that the department s assessments were issued beyond the statue of limitation for issuing assessments for additional tax.
Determination
Virginia Code § 58-151.0103 concerning report of change in federal taxable income provides in part that:
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- If the amount of any individual, estate, trust or corporate taxpayer's federal taxable income reported on his federal income tax return for any taxable year is changed or corrected by the United States Internal Revenue Service or other competent authority, or as the result of a renegotiation of a contract or subcontract with the United States, the taxpayer shall report such change or correction in federal taxable income within ninety days after the final determination of such change, correction, or renegotiation, or as otherwise required by the Department of Taxation, and shall concede the accuracy of such determination or state wherein it is erroneous.
Further Virginia Code § 58-151.0104 on limitations on assessments provides:
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- (a) General. Except as otherwise provided in this section and notwithstanding any other provision of law, any tax under this article and the preceding articles of this chapter shall be assessed within three years after the return was filed (whether or not such return was filed on or after the date prescribed).
(b) Exceptions. (1) Assessment at any time. The tax may be assessed at any time if
(A) No return is filed,
(B) A false or fraudulent return is filed with intent to evade tax, or
(C) The taxpayer fails to comply with § 58-151.0103 in not reporting a change or correction increasing his federal taxable income as reported on his federal income tax return, or in not reporting a change or correction which is treated in the same manner as if it were a deficiency for federal income tax purposes, or in not filing an amended return. (Emphasis Added.)
Virginia Code § 58-151.0103 does not place any restriction on the reason for changes in federal taxable income that are required to be reported to the department within 90 days of the final determination. It is the department's position that this section requires all changes in federal taxable income to be reported to the department regardless of the reason for such change. Therefore, changes in federal taxable income for the years at issue resulting from a compromise with the Federal Government to avoid further litigation should have been reported to the department. Since you failed to report those changes, Virginia Code § 58-151.0104(b)(C) authorized the department to issue an assessment without regard to any statutory period.
For the reasons set forth above, your application for correction is denied.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner