Tax Type
Individual Income Tax
Description
Business and passive income/fraud penalty
Topic
Constitutional Provisions
Penalties and Interest
Persons Subject to Tax
Records/Returns/Payments
Date Issued
06-21-2013
June 21, 2013
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the Virginia individual income tax assessments issued to ***** (the "Taxpayers") for the taxable years ended December 31, 2004 through 2007. I apologize for the delay in responding to your appeal.
FACTS
Pursuant to a criminal investigation, the Department determined that the Taxpayers failed to report business and passive income on their Virginia individual income tax returns for the taxable years at issue. The Taxpayers were prosecuted and proffered an Alford plea to one count of filing a false income tax return. Originally, the Taxpayers were sentenced to suspended incarceration and restitution equal to the approximate amount of tax and a 100% fraud penalty. The Court subsequently eliminated the penalty portion of the restitution.
The Department then issued assessments for the entire Virginia income tax due, plus a 100% fraud penalty and interest. The Taxpayers appeal the assessments, contending their liability should be limited to the restitution amount ordered by the trial court.
DETERMINATION
Virginia Code § 19.2-305.1 provides that "no person convicted of a crime . . . which resulted in property damage or loss, shall be placed on probation or have his sentence suspended unless such person shall make at least partial restitution for such property damage or loss . . . ." A trial court has "wide latitude" to make sentencing decisions, such as the ordering of restitution. See Deal v. Commonwealth, 15 Va. App. 160, 421 S.E.2d 899 (1992). Because the Taxpayers received a suspended sentence, the trial Court ordered restitution.
The Taxpayers assert that their liability for Virginia income tax was reduced by the trial court to the restitution amount. As such, they are not liable for the balance of any income tax, penalty or interest assessed above the restitution amount. Both criminal and civil sanctions, however, may be imposed for the same offense. See Hudson et al. v United States, 522 U.S. 93, 118 S.Ct. 488 (1997).
Virginia Code § 58.1-348 provides:
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- Notwithstanding any other provisions of this title [58.1] and in addition to any other penalties provided by law, any individual or fiduciary required under this chapter to make a return of income, who . . . with intent to defraud the Commonwealth, makes any false statement in any such return, shall be guilty of a Class 6 felony. [Emphasis Added.]
As such, any sentence or restitution imposed by a trial court is exclusive of any other statutes under Title 58.1. Thus, any criminal sentence imposed under Va. Code § 58.1-348 does not preclude the enforcement of any other of the Commonwealth's tax laws.
Virginia Code § 58.1-1812 provides that the Tax Commissioner must assess any tax not paid in full by a taxpayer and apply interest to this tax liability. Under Va. Code § 58.1-202, the Commissioner is required to administer the tax laws of the Commonwealth. Therefore, Virginia law requires that the Department assess any Virginia income tax liability above the amounts of restitution ordered plus interest.
Virginia Code § 58.1-308 provides for a 100% fraud penalty if the underpayment of tax is false or fraudulent with the intent to evade payment. According to the plea bargain agreement, the Taxpayers plead guilty in accordance with North Carolina v Alford, 400 U.S. 25 (1970). In Alford, the United States Supreme Court held that:
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- an accused may voluntarily, knowingly and intentionally plead guilty and consent to the imposition of a prison sentence even though he is unwilling to admit participation in the crime, or even if his guilty plea contains a protestation of innocence, when . . . the record strongly evidences his guilt
Under Va. Code § 58.1-348, filing a false Virginia income tax return is a Class 6 felony. The Taxpayers entered an Alford plea to one count of filing a false income tax return. An Alford plea is a "guilty plea that a defendant enters as part of a plea bargain, without actually admitting guilt." See Black's Law Dictionary (Eighth Edition, 2004, p. 78). By entering such a plea, the Taxpayers admit that the Commonwealth had overwhelming evidence to prove that they intentionally defrauded Virginia. As such, the Department properly assessed the 100% fraud penalty.
Based on the foregoing, the assessments are upheld. In accordance with the enclosed schedule and criminal investigation, an updated bill, with interest accrued to date, will be mailed to the Taxpayers shortly. No further interest will accrue provided the outstanding balance is paid within 30 days from the date indicated of the revised bill.
The Taxpayers currently have a payment plan for the Court ordered restitution amount. If they are unable to pay the balance due of the updated bills in full within the time provided, you may contact ***** of the Department's Compliance Unit at *****, to adjust the payment plan in accordance with this determination.
Please note that while a payment plan will provide an extended period for payment of the balance due, interest will continue to accrue on the balance until paid, pursuant to Va. Code § 58.1-1812.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Law, Rules and 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 *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-4828000052.B
Rulings of the Tax Commissioner