December 8, 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 assessments issued to ***** (the "Taxpayers") for the taxable years ended December 31, 2010 through 2012. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayers, a husband and a wife, were audited by the Internal Revenue Service (IRS) for the 2010 through 2012 taxable years. The IRS adjusted the Taxpayers' federal adjusted gross income (FAGI). The Taxpayers did not amend their Virginia income tax returns to report the IRS changes. As a result, the Department issued assessments. The Taxpayers appeal the assessments, contending they have not agreed with the IRS adjustments.
DETERMINATION
Virginia Code § 58.1-311 requires individuals to report a change or correction in federal taxable income within one year of the final determination of such change or correction by filing an amended return with the Department. If the taxpayers fail to file an amended return, Va. Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time.
The Taxpayers state that they do not agree with the IRS adjustment, contending the husband met the standards under Internal Revenue Code (IRC) § 475. This section of the IRC sets forth the requirements for individuals considered to be investors, dealers, or traders in securities for federal income tax purposes. The IRS reviewed the Taxpayers trading activities and determined the Taxpayers were not in the business of trading securities, thus the income and expenses derived from such activity were subject to certain limitations.
Where the IRS has audited the federal taxable income of a taxpayer, the Department does not look behind the IRS's final determination. See Public Document (P.D.) 11-107 (6/14/2011). The Department adjusted the Taxpayers' 2010 through 2012 Virginia income tax returns based on federal information available from the IRS as permitted by statute. No evidence has been presented to demonstrate the Department's adjustments are erroneous.
Based on the foregoing, the assessments are upheld and remain due and payable. The Taxpayers will receive updated bills with accrued interest to date. The bills should be paid within 30 days of the bill date to avoid the accrual of additional interest.
If the IRS later adjusts its audit findings for the 2010 through 2012 taxable years and issues a new final determination, the Taxpayers may file amended returns to correct their liabilities as permitted under Va. Code § 58.1-311 and § 58.1-1823 A(ii).
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 determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5988474514.D