Tax Type
Individual Income Tax
Description
Nonresident; IRS adjustment to FAGI
Topic
Taxpayers
Date Issued
11-20-1996
November 20, 1996
Re: 58.1-1821 Application: Individual Income Tax
Dear****************
This will reply to your letters concerning your 1990 through 1992 Virginia individual income tax assessments. I apologize for the delayed response.
FACTS
You claim to be nonresidents of the United States, that you did not conduct United States trade or business, and that you have never received taxable amounts of United States source income. You state that you have no obligation to pay taxes to the Internal Revenue Service (IRS), and therefore, you contend that you are under no obligation to file and pay taxes to the Commonwealth of Virginia.
For the taxable years 1990 and 1991, you filed Virginia individual income tax returns. The IRS informed the department that certain adjustments were made to your federal tax returns, therefore, letters were sent to you indicating that adjustments were made to your Virginia returns. For taxable year 1992, the department's records show that no return was filed and that adjustments were made to the federal tax return by the IRS. As an appropriate response was not received, assessments for each taxable year were issued for tax, penalties (where applicable) and interest. A further review of our records indicates that you have not filed Virginia income tax returns for the taxable years 1993 through 1995.
DETERMINATION
It appears that you have misunderstood the principal of conformity of Virginia income taxation with the Internal Revenue Code . Code of Virginia § 58.1-301, copy enclosed, provides 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 unless a different meaning is clearly required.
Virginia "conforms" to federal law because it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). To the extent that income is included in FAGI, it is also subject to taxation by Virginia. Section 61 (a)(1) of the Internal Revenue Code (IRC) clearly sets forth certain income that is included in determining gross income. Section 61 (b) of the IRC cross references §§71 through 90, which include other income used in determining gross income.
The citizenship of an individual is typically not relevant in determining Virginia residency. Code of Virginia §58.1-302, copy enclosed, specifically defines "resident" to include persons domiciled in Virginia as well as anyone physically present in Virginia. You admit to being physically present in Virginia.
Code of Virginia §58.1-341, copy enclosed, provides that 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 Code of Virginia §58.1-321, copy enclosed. When a resident does not file an amended Virginia return reporting federal adjustment or corrections that increase federal taxable income or when a resident does not file a Virginia return, Internal Revenue Code §6103 (d), copy enclosed, authorizes the department to obtain information from the Internal Revenue Service that will help in determining the resident's tax liability. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income which exceeds the filing threshold, the resident is required to file a Virginia income tax return pursuant to Code of Virginia §58.1-341.
You have not provided sufficient documentation to verify that you are not subject to tax as a Virginia resident. The department received information from the Internal Revenue Service indicating that, while residing in Virginia, you received income that was not reported on your Virginia returns. The department sent several letters notifying you of these findings. As you did not provide sufficient information to preclude issuing the assessments, the assessments were issued based on this federal information. Pursuant to Code of Virginia §58.1-111, copy enclosed, the department has the authority to estimate tax liability when a person refuses to file a valid return. Code of Virginia §58.1-205, copy enclosed, provides that any assessment shall be deemed prima facie correct. Additionally, Code of Virginia §58.1-312, copy enclosed, provides that an assessment can be issued at any time if a taxpayer fails to amend the Virginia return when a federal change or correction increases federal taxable income or if a Virginia return is not filed.
Although you claim to be a nonresident alien, a review of the department's records and the documents you provided clearly shows that you are a Virginia resident. Your residency claims of being a nonresident of the Commonwealth of Virginia have no basis in fact or Virginia law and have no purpose other than tax evasion. A person, therefore, who refuses to file income tax returns and pay income tax based solely on such claims has intentionally understated his income tax liability with the intent to evade tax, and would be subject to a 100% fraud penalty pursuant to Code of Virginia § 58.1-308, copy enclosed. Furthermore, one who files an application for correction pursuant to Code of Virginia §58.1-1821, copy enclosed, based solely on such claims has no purpose other than to hinder and delay collection of the proper tax liability. Consequently, collection activity need not be suspended while such applications for correction are being considered.
Based on the information provided, the department has properly applied the provisions of Title 58.1 of the Code of Virginia to your case. There is no basis to abate the assessments for the taxable years 1990 through 1992. A summary of these assessments is enclosed for your information. Interest has been updated through the date of this letter. The balance due of these assessments must be paid within 30 days from the date of this letter. After this period, all actions to collect your assessments will resume.
In addition, within 60 days from the date of this letter, you must file Virginia income tax returns for all relevant years, before taxable year 1990 or after taxable year 1991 that have not been filed. Based on your continued residence in Virginia, these returns must be filed consistent with the Code of Virginia and the Internal Revenue Code. Continued refusal to file any returns referenced in this letter will justify the 100% fraud penalty, pursuant to Code of Virginia §58.1 -308 and other legal actions to collect the proper tax. Payment of your assessments and income tax returns that have not been filed should be forwarded to********** Office of Tax Policy, Department of Taxation, Post Office Box 1880, Richmond, Virginia 23218-1880, who may be contacted at****************.
Your case is currently being handled as an appeal pursuant to Code of Virginia §58.1-1821. If you are not satisfied with this determination, you may apply to the circuit court for relief pursuant to Code of Virginia §58.1 -1825, copy enclosed. However, the application should be filed within three years from the date the assessments were made. Additionally, the assessments must be paid or the appropriate bond posted before the court application is deemed filed.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP10609N
Rulings of the Tax Commissioner