Tax Type
Individual Income Tax
Description
Subtractions; U.S. currency; Conformity to FAGI
Topic
Collection of Tax
Date Issued
11-05-1998
November 5, 1998
Re: Sec. 58.1-1821 Application: Individual Income Tax
Dear *****
This will reply to your letters in which you seek correction of your Virginia individual income tax assessments for the taxable years 1992, 1993, and 1994. I apologize for the delay in responding to your letters.
FACTS
You are a resident of Virginia. You claim there is no lawful money in circulation with which to pay income taxes and are, therefore, not required to pay them. You also claim that Federal Reserve Notes are obligations of the United States and are exempt from taxation by states. As you did not file individual income tax returns for the taxable years 1992, 1993, and 1994, the department issued assessments for each of those years. You are contesting these assessments.
You have requested that the department provide an explanation of certain federal tax laws and a letter that you received from the Internal Revenue Service. Additionally, you requested verification of a department employee who contacted you concerning your assessments.
DETERMINATION
Code of Virginia Sec. 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. 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). (FAGI). Income 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 Code of Virginia Sec. 58.1-322, copy enclosed.
To the extent, therefore, that income from obligations or securities of the United States is included in FAGI, it may be subtracted for Virginia income tax purposes in computing Virginia taxable income. This Virginia statute codifies the exempt status of income from obligations of the United States set forth in 31 USC Sec.3124(a), which provides, in pertinent part, that:
Code of Virginia Sec. 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 Sec. 58.1-321, copy enclosed. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia income tax return. 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 Virginia income tax liability.
For the taxable years 1992, 1993, and 1994, the department received information from the Internal Revenue Service indicating that they adjusted your federal tax return. For each year, separate letters dated May 27, 1997, were sent by the department notifying you of this fact and requesting that proper returns be filed or explanations be provided concerning why you were not required to file a return. When a sufficient response was not received, assessments were issued. Code of Virginia Sec. 58.1-312, copy enclosed, provides that an assessment can be issued at any time if a taxpayer fails to report on the Virginia return a federal change or correction that increases federal taxable income. Code of Virginia Sec. 58.1-205, copy enclosed, provides that any assessment issued by the department will be deemed prima facie correct.
Concerning the employee who contacted you one evening about your outstanding assessments, this employees's contact with you during the evening was appropriate. The department, at times, will contact taxpayers during the evening hours when they are more readily available to answer questions concerning their accounts.
Your claim that Virginia income tax cannot be paid by Federal Reserve Notes has no basis in fact or Virginia law. A person who fails to file income tax returns based solely on such a claim has intentionally understated his or her income tax liability with the intent to evade tax and can be subject to a 100% fraud penalty pursuant to Code of Virginia Sec. 58.1-308, copy enclosed. Furthermore, anyone who files an application for correction pursuant to Code of Virginia Sec. 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. Thus, collection activity need not be suspended while such application for correction is being considered.
Based on the information presented, you have not demonstrated that the individual income tax assessments for the taxable years 1992, 1993, and 1994 are incorrect. A summary of these assessments, the total of which is ***** is enclosed for your information. Interest has been updated through the date of this letter. You are hereby requested to pay the balance due of your assessments or file the appropriate Virginia tax returns including those returns subsequent to 1994. If the payment or returns are not received within the next 60 days, collection actions will resume. Your continued refusal to file returns in accordance with Virginia law will justify the 100% fraud penalty and other legal actions to collect the proper tax. Payments and/or returns should be sent to *****, Office of Tax Policy, Department of Taxation, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have further questions, ***** may be contacted at *****.
Your letter has been handled pursuant to Code of Virginia Sec. 58.1-1821. If you wish to pursue this matter further, there is a judicial remedy under Code of Virginia ***** Sec. 58.1-1825, copy enclosed. The application, however, should be filed within three years from the date of the assessments or within one year from the date of this letter, which ever is the later. Additionally, the assessments must be paid or the appropriate bond posted before the court application is deemed filed.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13305N
Re: Sec. 58.1-1821 Application: Individual Income Tax
Dear *****
This will reply to your letters in which you seek correction of your Virginia individual income tax assessments for the taxable years 1992, 1993, and 1994. I apologize for the delay in responding to your letters.
FACTS
You are a resident of Virginia. You claim there is no lawful money in circulation with which to pay income taxes and are, therefore, not required to pay them. You also claim that Federal Reserve Notes are obligations of the United States and are exempt from taxation by states. As you did not file individual income tax returns for the taxable years 1992, 1993, and 1994, the department issued assessments for each of those years. You are contesting these assessments.
You have requested that the department provide an explanation of certain federal tax laws and a letter that you received from the Internal Revenue Service. Additionally, you requested verification of a department employee who contacted you concerning your assessments.
DETERMINATION
Code of Virginia Sec. 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. 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). (FAGI). Income 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 Code of Virginia Sec. 58.1-322, copy enclosed.
-
- Code of Virginia Sec. 58.1-322(C)(1) provides, in pertinent part, a subtraction for:
-
- Income derived from obligations, or on the sale or exchange of obligations, of the United States and on obligations or securities of any authority, commission or instrumentality of the United States to the extent exempt from state income taxes under the laws of the United States including, but not limited to, stocks, bonds, treasury bills, and treasury notes....
To the extent, therefore, that income from obligations or securities of the United States is included in FAGI, it may be subtracted for Virginia income tax purposes in computing Virginia taxable income. This Virginia statute codifies the exempt status of income from obligations of the United States set forth in 31 USC Sec.3124(a), which provides, in pertinent part, that:
-
- Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax ... (Emphasis added.)
- Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax ... (Emphasis added.)
Code of Virginia Sec. 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 Sec. 58.1-321, copy enclosed. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia income tax return. 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 Virginia income tax liability.
For the taxable years 1992, 1993, and 1994, the department received information from the Internal Revenue Service indicating that they adjusted your federal tax return. For each year, separate letters dated May 27, 1997, were sent by the department notifying you of this fact and requesting that proper returns be filed or explanations be provided concerning why you were not required to file a return. When a sufficient response was not received, assessments were issued. Code of Virginia Sec. 58.1-312, copy enclosed, provides that an assessment can be issued at any time if a taxpayer fails to report on the Virginia return a federal change or correction that increases federal taxable income. Code of Virginia Sec. 58.1-205, copy enclosed, provides that any assessment issued by the department will be deemed prima facie correct.
Concerning the employee who contacted you one evening about your outstanding assessments, this employees's contact with you during the evening was appropriate. The department, at times, will contact taxpayers during the evening hours when they are more readily available to answer questions concerning their accounts.
Your claim that Virginia income tax cannot be paid by Federal Reserve Notes has no basis in fact or Virginia law. A person who fails to file income tax returns based solely on such a claim has intentionally understated his or her income tax liability with the intent to evade tax and can be subject to a 100% fraud penalty pursuant to Code of Virginia Sec. 58.1-308, copy enclosed. Furthermore, anyone who files an application for correction pursuant to Code of Virginia Sec. 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. Thus, collection activity need not be suspended while such application for correction is being considered.
Based on the information presented, you have not demonstrated that the individual income tax assessments for the taxable years 1992, 1993, and 1994 are incorrect. A summary of these assessments, the total of which is ***** is enclosed for your information. Interest has been updated through the date of this letter. You are hereby requested to pay the balance due of your assessments or file the appropriate Virginia tax returns including those returns subsequent to 1994. If the payment or returns are not received within the next 60 days, collection actions will resume. Your continued refusal to file returns in accordance with Virginia law will justify the 100% fraud penalty and other legal actions to collect the proper tax. Payments and/or returns should be sent to *****, Office of Tax Policy, Department of Taxation, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have further questions, ***** may be contacted at *****.
Your letter has been handled pursuant to Code of Virginia Sec. 58.1-1821. If you wish to pursue this matter further, there is a judicial remedy under Code of Virginia ***** Sec. 58.1-1825, copy enclosed. The application, however, should be filed within three years from the date of the assessments or within one year from the date of this letter, which ever is the later. Additionally, the assessments must be paid or the appropriate bond posted before the court application is deemed filed.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13305N
Rulings of the Tax Commissioner