Rulings of the Tax Commissioner

January 6, 2023

Re:    § 58.1-1821 Application: Individual Income Tax

Dear *****:

This will respond to your letter in which you seek correction of the individual income tax assessments issued to ***** (the “Taxpayer”) for the taxable years ended December 31, 2018, and December 31, 2019. 

FACTS

The Taxpayer filed Virginia resident income tax returns for the 2018 and 2019 taxable years claiming itemized deductions reportable on federal Schedule A and deductions for expenses attributable to a rental property on federal Schedule E. Under audit, the Department requested documentation to support the deductions. When no response was received, the Department disallowed the deductions and issued assessments.

Subsequently, the Taxpayer contacted the Department multiple times to state that she had been a victim of fraud. The Department resent the original audit letters to the Taxpayer at her new address. The Taxpayer stated that she sent multiple faxes regarding her identity theft to the Department, but none were ever received. The Taxpayer appeals the assessments, contending she has been a victim of identity theft, fraud, and misrepresentation.

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. The Department, however, 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.  

Taxpayers must maintain records sufficient to allow the IRS to determine their correct tax 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 properly to 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. 

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.  

Although Taxpayer has asserted she was a victim of identity theft, she has not demonstrated how identity theft affected her 2018 and 2019 Virginia individual income tax returns. The Taxpayer has not denied filing the returns at issue, nor has she offered to file amended returns on the basis that what was filed contained erroneous information. In addition, while the appeal was pending, the Department asked for documentation concerning fraud allegations the Taxpayer claims to have made through the Internal Revenue Service (IRS). Such documentation was requested in an electronic mail dated July 21, 2022, then in follow-up letters dated August 30, 2022, and October 24, 2022, respectively. To date, the Department still has not received a response to these requests. The Department cannot accept an unsubstantiated assertion of fraud as a basis for adjusting an assessment.

Because the Taxpayer has failed to furnish information required by law, I must uphold the Department’s assessments for the 2018 and 2019 taxable years. I will, however, give the Taxpayer one last opportunity to provide adequate documentation. The documentation 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 documentation will be reviewed and the assessments may be adjusted, as appropriate. If the documentation is not received within the allotted time, the assessments will be considered correct. 

The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. 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/4251.X