September 13, 2024
Re: § 58.1-1821 Appeal: Individual Income Tax
Dear *****:
This will respond to your letter in which you seek correction of the individual income tax assessments issued to you (the “Taxpayer”) for the taxable years ended December 31, 2014, 2015, and 2017.
FACTS
The Department issued assessments to the Taxpayer in May 2018, May 2019, and December 2020 after he failed to file Virginia individual income tax returns for the 2014, 2015, and 2017 taxable years, respectively. The Taxpayer filed an application for correction of the assessments in August 2023, contending that he was a victim of fraud.
DETERMINATION
Statute of Limitations
The assessments at issue result primarily from the failure to file returns and raise several different issues with respect to statutes of limitation. Each of these limitation periods will be addressed in turn.
Deadlines for Filing Appeals
Virginia Code § 58.1-1821 states, “Any person assessed with any tax administered by the Department of Taxation may, within 90 days from the date of such assessment, apply for relief to the Tax Commissioner. Such application shall be in the form prescribed by the Department and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer’s contention.” Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-20-165, a complete appeal must be filed with the Department within 90 days from the date of assessment. In addition, Virginia Code § 58.1-1820 provides that assessments made by the Department are deemed to be made when a written notice of assessment is mailed to a taxpayer at his last known address.
The most recent assessment, which was for the 2017 taxable year, was issued on December 31, 2020. The Taxpayer filed the present application for correction with the Department in August 2023, well after the 90 day statute of limitations had expired for any of the assessments at issue.
Protective Claims
Virginia Code § 58.1-1824 provides that “[a]ny person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing a claim for refund with the Tax Commissioner. . . within three years of the date such tax was assessed.” Virginia Code § 58.1-1824, therefore, expressly limits the right to file a protective claim to cases in which both the filing of the claim and the payment of the assessment occurred within three years of the assessment. See Public Document (P.D.) 86-224 (11/3/1986). In addition, all assessed taxes, penalties, and accrued interest for the year or years subject to the request must be paid in full before a taxpayer may file a protective claim. See Title 23 VAC 10-20-190 A 1.
To make a protective claim, the last day for payment of any of the assessments at issue was in December 2023, three years after the assessment was issued for the 2017 taxable year. Although the Taxpayer’s application for correction was filed in August 2023, none of the assessments have been paid in full. In addition, the three-year period to file a protective claim for the 2014 or 2015 taxable years had already expired by 2023. As such, the Department is unable to treat the Taxpayer’s application as a timely filed protective claim for refund as to any of the taxable years at issue.
Taxation of Virginia Residents
The statute of limitations issues not withstanding, the Department will explain the basis for the assessments for informational purposes. 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 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.
Further, 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. When a resident does not file a proper Virginia return, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will help in determining the resident's tax liability. See P.D. 14-33 (3/7/2014).
In this case, it appears that the Taxpayer was a resident of Virginia for each of the taxable years at issue. As such, he would have been subject to Virginia income tax and required to file Virginia resident income tax returns if he had sufficient income to exceed the filing threshold.
Based on the information the Department received from the IRS, the Taxpayer had income reported on both Form W-2 and Form 1099-MISC each year, but most of his income was reported on Forms 1099-MISC. The total amount of income exceeded the filing threshold each year, and the assessments were based on such amounts.
Although the Taxpayer claims that the business that issued him the Forms 1099-MISC may have committed fraud, he has not provided any objective evidence of fraud or otherwise submitted any information that would enable the Department to determine the true amount of income he received. In the absence of such evidence and information, the Department was justified in relying on the information received from the IRS to determine the Taxpayer’s Virginia income tax liability.
CONCLUSION
The Taxpayer failed to timely file an application for correction of the assessments or make a valid protective claim for refund as to any of the taxable years at issue. Even if he had, the Department’s assessments were based on information obtained from the IRS as permitted under Virginia law, and the Taxpayer has not provided any objective evidence that the information was incorrect.
Therefore, the assessments issued for taxable years ended December 31, 2014, 2015, and 2017 remain due and payable. Updated bills will be issued to the Taxpayer, including accrued interest to date. The Taxpayer should remit payment immediately or collections actions will resume.
The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available 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,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4678.Y