March 8, 2018
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 assessment issued to ***** (the “Taxpayer”) for the taxable years ended December 31, 2009 through 2012. I apologize for the delay in responding to your appeal.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file Virginia individual income tax returns for the taxable years at issue. The Department requested information to verify whether the Taxpayer was subject to Virginia income tax. When an adequate response was not received, the Department issued assessments for each taxable year at issue. The Taxpayer filed an appeal, contending the IRS committed fraud.
DETERMINAITON
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. As such, Virginia's conformity to federal law is limited to the actual use of a specific term in a Virginia statute. Further, conformity does not extend to terms, concepts, or principles not specifically included in Virginia tax statutes. For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income with FAGI. Income 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 Virginia Code § 58.1-322.
Virginia Code § 58.1-341 provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Virginia Code § 58.1-321. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia individual income tax return. When a resident does not file a proper Virginia return, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will enable the Department to determine the resident's tax liability.
In addition, the Virginia Supreme Court has held “the power of the State of Virginia to levy taxes is not derived from the Constitution of the United States as interpreted by the Supreme Court. On the contrary, the State has the inherent and unlimited power of taxation unless restrained by its Constitution or the Constitution of the United States.” See Colonial Pipeline Company v. Commonwealth of Virginia, 206 Va. 517, 145 S.E.2d 227 (1965). Thus, the fact that Virginia starts with the IRC to determine Virginia taxable income does not in any way inhibit the Commonwealth's authority to impose an income tax on its citizens.
The Taxpayer has provided no evidence that the IRS information legally obtained by the Department is fraudulent. Accordingly, the individual income tax assessments issued for the 2009 through 2012 taxable years are upheld and remain due and payable. Collection action as permissible by law will continue.
Further, the Taxpayer's claim that the Department's assessments are illegal has no basis in fact or Virginia law. An individual who fails to file income tax returns based solely on such a claim has intentionally understated his or her income tax liability with the intent to evade tax and is subject to a 100% fraud penalty pursuant to Virginia Code § 58.1-308.
The Code of Virginia sections 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 response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1197.o