June 25, 2015
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessment issued to ***** (the "Taxpayer") for the taxable year ended December 31, 2013. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer filed a 2013 nonresident Virginia individual income tax return. Under audit, the Department requested verification of the itemized deductions reported on the return. When sufficient documentation was not provided, the Department denied the deductions and issued an assessment. The Taxpayer appeals the assessment, contending he used a tax preparation service to fill out his returns. He also asserts that he provided available documents to the auditor to verify the itemized deductions at issue.
DETERMINATION
Virginia Code § 58.1-301 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 (IRC) 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). See Va. Code § 58.1-322 A.
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 Va. Code § 58.1-219.
Under Virginia Code § 58.1-322 D 1, a taxpayer may deduct from his Virginia adjusted gross income, the amount allowed for itemized deductions for federal income tax purposes. IRC § 211 allows additional deductions for individuals, including but not limited to educator expenses, alimony, moving expenses and contributions to IRAs.
Virginia's taxing system is based largely on the theory of self assessment. A taxpayer computes his own income and tax, fills out his own return, files the return, and pays the tax indicated. Virginia has implemented a self-assessment system based on the federal system because it is less intrusive upon taxpayers, simpler, and less costly to administer. Consequently, taxpayers are responsible for the information provided on income tax returns.
In Public Document (P.D.) 11-78 (5/26/2011), the Department ruled that undocumented deductions reported on Virginia tax returns cannot be excused by a taxpayer's reliance on the tax preparer. As such, a taxpayers reliance on the tax preparer in preparing their Virginia income tax return does not relieve them of the responsibility for ensuring that the information reported on the return is accurate. See P.D. 12-93 (6/8/2012).
In this case, the Taxpayer claims to have provided documentation, but the Department has no record of receiving the information. According to the Taxpayer, he has also stated that he has evidence that his documentation was received by the Department. He has failed to respond to a request to provide the tracking number for the package in order to allow the Department to conduct a complete search of its records.
Taxpayer Records
In his appeal, the Taxpayer claims that the records have been destroyed, lost or are unavailable because he has moved to another state and changed employers.
A taxpayer is required to maintain records sufficient to allow the IRS to determine his correct tax liability. See Treas. Reg. § 1.6001-1(a). Similarly, Va. 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 to properly 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.
Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws of Virginia, an "assessment of a tax by the Department shall be deemed prima facie correct." As such, the burden of proof is on the Taxpayer to show they had no Virginia taxable income. Further, Va. Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the assessment was attributable to a taxpayer's willful failure or refusal to provide the Department with necessary information as required by law.
By correspondence dated February 14, 2014, and June 25, 2014, the Department requested documentation to substantiate the itemized deductions claimed on the Virginia individual income tax return. Because the Taxpayer has failed to furnish information required by law, there is no basis to adjust the Department's assessment as issued. Accordingly, the assessment is upheld and remains due and payable.
An updated bill will be issued shortly, which will include accrued interest to date. Payment of the assessments should be made within 30 days of the bill date in order to avoid the accrual of additional interest.
The Code of Virginia sections, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5830264245.D