January 11, 2022
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 “Taxpayers”) for the taxable year ended December 31, 2013.
FACTS
The Internal Revenue Service (IRS) notified the Department that it adjusted the Taxpayers’ 2013 federal income tax return. Because the Department had no record of having received an amended Virginia income tax return to report the federal change, an assessment was issued for additional tax due. The Taxpayers appeal, contending the assessment was issued outside the statute of limitations period.
DETERMINATION
Virginia Code § 58.1-301 provides, with certain exceptions, that the 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). Income properly 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 Chapter 3 of Title 58.1 of the Code of Virginia.
Virginia Code § 58.1-311 requires taxpayers to report a change or correction made to their federal taxable income within one year of the final determination of any such change or correction by filing an amended return with the Department. If a taxpayer fails to file an amended return, Virginia Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time.
In addition, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will assist in determining any additional tax liability. In this case, the information obtained by the Department indicated that the Taxpayers’ FAGI was increased and their itemized deductions were decreased. According to the Taxpayers’ federal transcript, these adjustments were the result of an IRS examination performed in 2016.
In prior communications with the Department’s audit staff, the Taxpayers’ preparer asserted that the IRS adjustments were in error and had been made after the statute of limitations had expired. He also stated he was corresponding with the IRS to have it corrected. The IRS, however, has not made any changes to its adjustment according to the above-referenced transcript. 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 11-107 (6/14/2011).
In their appeal, the Taxpayers repeat the contention that the assessment was issued after the statute of limitations had expired. The Taxpayers’ appeal, however, does not specify whether they mean the statute of limitations that applied to the changes made by the IRS or the statute of limitations that applied to the Department in issuing its assessment. The question whether the IRS made its adjustment and issued its assessment within the applicable statute of limitations is a matter of federal law, which the Department lacks the authority to decide. In addition, because the Taxpayers failed to file an amended Virginia return to report the federal changes, Virginia Code § 58.1-312 allows the Department to assess the additional tax at any time, as stated above.
Under these circumstances, I find no basis to abate the assessment. According to the Department’s records, the assessment has been paid by means of a collection action. Therefore, no further action is required. If the IRS adjusts its audit findings for the 2013 taxable year, the Taxpayers will be permitted to file an amended Virginia return to correct the liability pursuant to Virginia Code § 58.1-311 and Virginia Code § 58.1-1823.
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/3952.X