Document Number
17-23
Tax Type
Individual Income Tax
Description
Taxpayer never paid Virginia income tax on any of the income he received from the employer.
Topic
Federal Conformity
Persons Subject to Tax
Returns/Payments/Records
Date Issued
03-15-2017

March 15, 2017

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, 2009.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia individual income tax return for the 2009 taxable year.  A review of the Department's records showed that the Taxpayer had not filed a return.  The Department requested additional information from the Taxpayer to determine if his income was subject to Virginia individual income tax.  In response, the Taxpayer filed a return that reported a tax due.  Because the Taxpayer had not paid the tax, the Department issued an assessment.  The Taxpayer filed an appeal, contending that his employer erroneously treated him as an independent contractor and did not withhold income tax from his wages.

DETERMINATION

In John M. and Alice D. Church v. Commissioner of the Internal Revenue Service, 810 F2d 1959, A.F.T.R.2d 87-469 (2nd Cir., 1987), the United States Court of Appeals held that “the failure of the employer to withhold taxes, as it should have, did not lessen the taxpayers' obligation to report and pay taxes on income that they in fact received.”  Thus, while an employer may have been required to withhold Virginia income tax from an employee's compensation under Va. Code § 58.1-461 et seq., the employee is responsible for reporting the income and paying the entire tax.  See Public Document (P.D.) 95-119 (5/16/1995).

In this case, it appears that the IRS conducted an audit and determined that the Taxpayer's employer should have treated him as an employee rather than an independent contractor.  The Taxpayer does not disagree with that conclusion, but he asserts that his employer should have withheld income tax from his wages.  As stated above, regardless of whether the employer withheld wages or not, it is the employee's responsibility to report the income and pay the entire tax.  If the employer was not withholding wages, the Taxpayer should have declared and paid sufficient quarterly estimated tax payments, as provided in Va. Code § 58.1-490 et seq., to cover the anticipated tax liability.  In this case, the Taxpayer never paid Virginia income tax on any of the income he received from the employer.  Therefore, I find that the Department's assessment is correct.

An updated bill will be issued, which will include accrued interest to date.  The Taxpayer should remit payment within 30 days of the bill date to avoid the accrual of additional interest and possible collections actions.

The Code of Virginia sections and public document 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/1085.M

Rulings of the Tax Commissioner

Last Updated 10/02/2017 07:19