Tax Type
Individual Income Tax
Description
Fraudulent return
Topic
Penalties and Interest
Date Issued
08-27-1985
August 27, 1985
RE: §58.1-1821 Application/Individual Income Tax
Dear ****
This will reply to your letter of March 19, 1985, on behalf of ***** (Taxpayer), requesting abatement of an assessment issued in the above referenced case.
Facts
From 1979 through 1983, Taxpayers deducted all or a substantial part of their income as charitable contributions to an order of ***** designated as *****. Taxpayer's involvement in the "order" encompassed taking a vow of poverty, establishing their own church, and making an irrevocable gift of all of their possessions, and income to such church. The department disallowed the claimed charitable contributions and issued assessments accordingly.
Determination
§58.1-398 of the Virginia Code states,
Furthermore, §63O-2-308(B) of the Virginia Individual Income Tax Regulations states, "The penalty for the filing of a false or fraudulent return with intent to evade the tax will be assessed against a taxpayer whenever the complementary federal fraud penalty is assessed against such taxpayer for the same taxable year or on the basis of the facts in each particular case."
The term "fraud" means actual intentional wrongdoing with a specific intent to evade a tax believed to be owing. L. F. Ratterman, TC Memo Op. Dkt 11319 (1948) aff'd. 177 F2d 204 (CA 6th, 1949).
In addition, while "Isolated errors or discrepancies in records may be insufficient to establish a fraudulent intent to evade tax, where large amounts of income unquestionably received are consistently and repeatedly omitted from tax returns, and where the explanation of such omissions is patently weak or incredible, then the conclusion is inescapable that the taxpayer intended to understate his true income." James P. Hayes, TC Memo (1960-221); George J. Klevenhagen, TC Memo Op. Dkt. 2O9296 (195O); Ivan B. Reash, TC Memo Op. Dkt. 35691 (1953). And, "Understatements of income cannot be attributed to mere inadvertence, neglect, or ignorance where the understatements are so large, so regular, and so frequent as to show a deliberate intention to defraud." Ray Shaban, TC Memo, Op. Dkt. 329O2 (1952).
The department is justified in imposing all interest and penalties which have heretofore been assessed in this case based on the facts presented. Those facts include taxpayer's willful and deliberate deduction of most or all of their taxable income from federal adjusted gross income for the years 1979 through 1983 as charitable contributions.
Based on all of the above, I find no basis for correction of the assessment in this case, the entire amount of which is hereby immediately due and payable. However, in making such payment, Taxpayers may file a protective claim for refund pending the outcome of negotiations between Taxpayers and the Internal Revenue Service, insofar as they pertain to the taxable years involved in this case.
Sincerely,
W. H. Forst
Tax Commissioner
RE: §58.1-1821 Application/Individual Income Tax
Dear ****
This will reply to your letter of March 19, 1985, on behalf of ***** (Taxpayer), requesting abatement of an assessment issued in the above referenced case.
Facts
From 1979 through 1983, Taxpayers deducted all or a substantial part of their income as charitable contributions to an order of ***** designated as *****. Taxpayer's involvement in the "order" encompassed taking a vow of poverty, establishing their own church, and making an irrevocable gift of all of their possessions, and income to such church. The department disallowed the claimed charitable contributions and issued assessments accordingly.
Determination
§58.1-398 of the Virginia Code states,
-
- "If the amount of tax computed by the Department is greater than the amount theretofore assessed, the excess shall be assessed by the Department,...(and) If the understatement is false or fraudulent with intent to evade the tax, a penalty of 100% shall be added together with interest on the tax at a rate determined in accordance with, §58.1-15, from the time the return was required by law to be filed until paid." (Emphasis added)
Furthermore, §63O-2-308(B) of the Virginia Individual Income Tax Regulations states, "The penalty for the filing of a false or fraudulent return with intent to evade the tax will be assessed against a taxpayer whenever the complementary federal fraud penalty is assessed against such taxpayer for the same taxable year or on the basis of the facts in each particular case."
The term "fraud" means actual intentional wrongdoing with a specific intent to evade a tax believed to be owing. L. F. Ratterman, TC Memo Op. Dkt 11319 (1948) aff'd. 177 F2d 204 (CA 6th, 1949).
In addition, while "Isolated errors or discrepancies in records may be insufficient to establish a fraudulent intent to evade tax, where large amounts of income unquestionably received are consistently and repeatedly omitted from tax returns, and where the explanation of such omissions is patently weak or incredible, then the conclusion is inescapable that the taxpayer intended to understate his true income." James P. Hayes, TC Memo (1960-221); George J. Klevenhagen, TC Memo Op. Dkt. 2O9296 (195O); Ivan B. Reash, TC Memo Op. Dkt. 35691 (1953). And, "Understatements of income cannot be attributed to mere inadvertence, neglect, or ignorance where the understatements are so large, so regular, and so frequent as to show a deliberate intention to defraud." Ray Shaban, TC Memo, Op. Dkt. 329O2 (1952).
The department is justified in imposing all interest and penalties which have heretofore been assessed in this case based on the facts presented. Those facts include taxpayer's willful and deliberate deduction of most or all of their taxable income from federal adjusted gross income for the years 1979 through 1983 as charitable contributions.
Based on all of the above, I find no basis for correction of the assessment in this case, the entire amount of which is hereby immediately due and payable. However, in making such payment, Taxpayers may file a protective claim for refund pending the outcome of negotiations between Taxpayers and the Internal Revenue Service, insofar as they pertain to the taxable years involved in this case.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner