April 5, 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 assessments issued to ***** (the “Taxpayers”) for the taxable years ended December 31, 2018 and 2019.
FACTS
The Taxpayers filed Virginia resident income tax returns for the 2018 and 2019 taxable years claiming deductions on federal Form 2106. Under audit, the Department requested documentation to support the deductions. When no response was received, the Department disallowed the deductions and issued assessments. The Taxpayers appeal the assessments, contending the Department lacks authority to adjust amounts reported on federal tax forms.
DETERMINATION
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. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia. 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.
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 Virginia Code § 58.1-219. The Department has consistently exercised this authority in conducting its audit programs. See Public Document (P.D.) 10-126 (7/07/2010), P.D. 12-141 (8/29/2012), P.D. 14-155 (8/28/2014), P.D. 16-53 (4/11/2016), P.D. 19-104 (9/18/2019), and P.D. 21-67 (5/25/2021). In addition, such adjustments have been made independently from any actions taken by the IRS.
The Taxpayers claimed an adjustment to federal gross income in 2018 and 2019 for employee business expenses reported on Form 2106. For the 2018 and 2019 taxable years, only Armed Forces reservists, qualified performing artists and fee-based state or local officials were eligible to claim an adjustment to income using Form 2106. This change in the deductibility of employee business expenses came as a result of § 11045 of P.L. 115-97, commonly known as the “Tax Cuts and Jobs Act,” which generally suspended miscellaneous itemized deductions, including unreimbursed employee business expenses, for the 2018 through 2025 taxable years. See also IRC § 67(g).
With their appeal, the Taxpayers submitted their response to the auditor’s original information requests that indicated they were not members of any of the three classes of individuals eligible to claim an adjustment to income using Form 2106. The Taxpayers, therefore, were not eligible to claim the adjustment to income and the assessment must be upheld.
The Taxpayers will receive an updated bill that will include accrued interest to date. The Taxpayers should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collection actions.
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/3866.X