April 19, 2023
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 assessments issued to ***** the (“Taxpayer”) for the taxable years ending December 31, 2017, through 2019.
FACTS
The Taxpayer timely filed her 2017 through 2019 Virginia resident individual income tax returns. Subsequently, the Department received information from the Internal Revenue Service (IRS) indicating the Taxpayer’s federal adjusted gross income (FAGI) was adjusted for each year as a result of an audit. Because the Taxpayer had not filed amended Virginia returns to report the federal changes, assessments were issued for additional tax due. The Taxpayer filed an appeal, contending the assessments were issued after the statute of limitations had expired.
DETERMINAITON
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. 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 (VTI) with 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 any individual 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 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.
The information received from the IRS indicates that it made a number of adjustments that affected the Taxpayer’s income and deductions, and ultimately resulted in an increase to the Taxpayer’s FAGI for the taxable years at issue. The Department has a longstanding policy that, 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) and P.D. 17-143 (8/23/2017). In this case, the Department adjusted the Taxpayer’s FAGI to match the results of the IRS audit.
The Taxpayer contends that the assessments were issued after the statute of limitations period set by Virginia Code § 58.1-104 had expired. Generally, pursuant to Virginia Code § 58.1-104, the Department has authority to issue an assessment within three years of the due date of a timely filed return. This statute, however, expressly provides for exceptions under Chapter 3 (Virginia Code § 58.1-300 et. seq.) and Chapter 6 (Virginia Code § 58.1-600 et. seq.). Chapter 3 of the Code of Virginia governs income tax. As indicated above, when an individual fails to report changes made by the IRS as required by Virginia Code § 58.1-311, Virginia Code § 58.1-312 A 3 permits the Department to assess the appropriate tax at any time, even outside the three-year period under Virginia Code § 58.1-104. See P.D. 88-307 (11/7/1988), P.D. 11-105 (6/10/2011), and P.D. 17-66 (5/10/2017). As such, the Department has the authority to issue the assessments for the 2017 through 2019 taxable years.
The Taxpayer 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 taxable years at issue, the Taxpayer will be permitted to file amended returns to correct her liability pursuant to Virginia Code § 58.1-311 and Virginia Code § 58.1-1823.
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 website. 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/4222.B