23VAC10-110 Individual Income Tax

REGULATIONS

Vol. 33 Iss. 6 - November 14, 2016

TITLE 23. TAXATION

DEPARTMENT OF TAXATION

Chapter 110

Fast-Track Regulation

Titles of Regulations: 23VAC10-20. General Provisions Applicable to All Taxes Administered by the Department of Taxation (amending 23VAC10-20-180).

23VAC10-110. Individual Income Tax (repealing 23VAC10-110-70).

23VAC10-115. Fiduciary Income Tax (amending 23VAC10-115-110).

23VAC10-120. Corporation Income Tax (repealing 23VAC10-120-30).

Statutory Authority: § 58.1-203 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: January 17, 2017.

Effective Date: February 1, 2017.

Agency Contact: Matthew Huntley, Senior Policy Analyst, Department of Taxation, P.O. Box 27185, Richmond, VA 23219, telephone [phone], or email [e-mail].

Basis: Section 58.1-203 of the Code of Virginia provides that the Tax Commissioner shall have the power to issue regulations relating to the interpretation and enforcement of the laws of this Commonwealth governing taxes administered by the Department of Taxation. The authority for the current regulatory action is discretionary.

Purpose: This regulatory action amends the General Provisions Applicable to All Taxes Administered by the Department of Taxation regulations to strike provisions that are no longer accurate and to consolidate certain provisions that are currently repeated within the Virginia Administrative Code. This action has no impact on the public health, safety, and welfare.

The affected provisions deal with the due dates for filing amended tax returns, as well as the definition of a final determination for purposes of determining when a taxpayer is required to file an amended return based on a change in any federal tax. Section 58.1-1823 A of the Code of Virginia provides deadlines regarding when a taxpayer may file an amended return. Among such deadlines is a rule that a taxpayer has one year from the final determination of any change or correction in the liability for the taxpayer for any federal tax upon which the state tax is based to file an amended return. In addition to this rule, § 58.1-311 of the Code of Virginia specifically requires individuals, estates, trusts, and corporations to file an amended Virginia income tax return reporting any change or correction in federal taxable income made by the Internal Revenue Service within one year after the final determination of such change or correction.

The regulation sections affected by this action were promulgated prior to the enactment of legislation that modified the statutory language. Repealing these provisions updates the regulations so that they are consistent with the statute. In addition, the affected regulation sections contain a definition of what constitutes a "final determination" for purposes of determining the deadline for filing an amended return. Because the same definition applies to multiple tax types, this action consolidates the definition in one regulation.

This regulatory action does not reflect any change in current tax policy and has no impact on the administration of any taxes.

Rationale for Using Fast-Track Rulemaking Process: The fast-track rulemaking process is intended for proposed regulations that are expected to be noncontroversial. As this regulatory action repeals regulatory provisions that are duplicative of underlying statutory provisions and consolidates the location of a regulatory definition, this action is not expected to be controversial.

Substance: This regulatory action amends the General Provisions Applicable to All Taxes Administered by the Department of Taxation regulations to strike provisions that are no longer accurate and to consolidate certain provisions that are currently repeated within the Virginia Administrative Code.

The affected provisions deal with the due dates for filing amended tax returns, as well as the definition of a final determination for purposes of determining when a taxpayer is required to file an amended return based on a change in any federal tax. Section 58.1-1823 A of the Code of Virginia provides that any person filing a tax return or paying an assessment for any tax administered by the department may file an amended return within the later of:

• Three years from the last day prescribed by law for the timely filing of the return;

• One year from the final determination of any change or correction in the liability of the taxpayer for any federal tax upon which the state tax is based, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such federal change or correction;

• Two years from the filing of an amended Virginia return resulting in the payment of additional tax, provided that the amended return raises issues relating solely to such prior amended return and that the refund does not exceed the amount of the payment with such prior amended return;

• Two years from the payment of an assessment, provided that the amended return raises issues relating solely to such assessment and that the refund does not exceed the amount of such payment; or

• One year from the final determination of any change or correction in the income tax of the taxpayer for any other state, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such change or correction.

During the 1992, 1996, 1998, 2006, and 2010 Sessions, the General Assembly made several modifications to § 58.1-1823 A of the Code of Virginia. See 1992 House Bill 227 (1992 Acts of Assembly, Chapter 678), 1996 House Bill 583 (1996 Acts of Assembly, Chapter 654), 1996 Senate Bill 182 (1996 Acts of Assembly, Chapter 637), 1998 House Bill 629 (1998 Acts of Assembly, Chapter 374), 1998 Senate Bill 543 (1998 Acts of Assembly, Chapter 358), 2006 Senate Bill 583 (2006 Acts of Assembly, Chapter 234), and 2010 House Bill 384 (2010 Acts of Assembly, Chapter 228). Because 23VAC10-20-180, 23VAC10-110-70, 23VAC10-115-110, and 23VAC10-120-30 were promulgated prior to the enactment of such legislation, the provisions in these regulation sections regarding the deadlines for filing an amended return are incomplete and inaccurate. In addition, these provisions are unnecessary because they are duplicative of the information that is provided in § 58.1-1823 of the Code of Virginia. Therefore, this regulatory action strikes the provisions of 23VAC10-20-180, 23VAC10-110-70, 23VAC10-115-110, and 23VAC10-120-30 regarding deadlines for filing an amended return.

Under § 58.1-311 of the Code of Virginia, if any individual, estate, trust, or corporate taxpayer's federal taxable income reported on its federal income tax return is changed or corrected by the Internal Revenue Service, such taxpayer is required to file an amended Virginia income tax return reporting such change or correction within one year after the final determination of such change or correction. During the 2006 Session, the General Assembly enacted Senate Bill 583, which extended the reporting deadline from 90 days to one year. See 2006 Acts of Assembly, Chapter 234. Because 23VAC10-110-70, 23VAC10-115-110, and 23VAC10-120-30 were promulgated prior to the enactment of such legislation, the provisions in these regulation sections regarding reporting changes or corrections of federal taxable income are inaccurate. In addition, these provisions are unnecessary because they are duplicative of the information that is provided in § 58.1-311 of the Code of Virginia. Therefore, this regulatory action strikes the provisions of 23VAC10-110-70, 23VAC10-115-110, and 23VAC10-120-30 regarding reporting changes or corrections of federal taxable income.

23VAC10-110-70, 23VAC10-115-110, and 23VAC10-120-30 each define the term "final determination" by referencing the definition of such term that is provided in 23VAC10-20-180. The regulatory definition of the term "final determination" is important because it is not defined in the underlying statute, § 58.1-311 of the Code of Virginia. Because it is unnecessary to have four separate, but virtually identical, definitions of the same term in the regulations, this regulatory action strikes the provisions of 23VAC10-110-70, 23VAC10-115-110, and 23VAC10-120-30 that define "final determination." This regulatory action also amends 23VAC10-20-180 to include language stating that such definition applies for purposes of §§ 58.1-311 and 58.1-1823 of the Code of Virginia.

23VAC10-115-110 provides information regarding due dates for returns of estates and trusts and who is required to file returns of estates and trusts. These provisions are unnecessary because they are duplicative of the information that is provided in § 58.1-381 of the Code of Virginia. Therefore, this regulatory action strikes such provisions.

This regulatory action does not reflect any change in current tax policy and has no impact on the administration of any taxes.

Issues: The advantage to the public and the Commonwealth is the repeal regulatory provisions that are duplicative of underlying statutory provisions and the consolidation of the location of a regulatory definition. There are no disadvantages to the public or the Commonwealth associated with this regulatory action.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Department of Taxation proposes to repeal provisions that are no longer accurate due to statutory changes or duplicative of the statutory language and to consolidate certain provisions in the regulation.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. This regulation contains general provisions applicable to Individual Income, Fiduciary Income, and Corporation Income Taxes. The proposed regulation will repeal deadlines for amended returns and for reporting of changes or corrections to the federal taxable income. Numerous statutory changes in the 1992, 1996, 1998, 2006, and 2010 Virginia General Assembly sessions amended §§ 58.1-311 and 58.1-1823 of the Code of Virginia and rendered the current regulatory language incomplete and inaccurate. In addition, these regulatory provisions are unnecessary because they are duplicative of the information provided in the statute. Similarly, the due dates for returns of estates and trusts are duplicative of § 58.1-381 of the Code of Virginia. Repealing these provisions would update the regulations so that they are consistent with the statute. In addition, the definition of "final determination" is identical for all taxes in this regulation and will be consolidated to apply to all of them. Since this regulatory action does not reflect any change in current tax policy or on the administration of any taxes, no economic effect is expected other than eliminating conflicting information between the Code of Virginia and the regulation that may cause confusion.

Businesses and Entities Affected. This regulation applies to individuals and businesses subject to Individual Income, Fiduciary Income, and Corporation Income Taxes. In the 2013 taxable year, 3,765,669 individual tax returns, 66,580 corporate income tax returns, and 67,637 fiduciary income tax returns were filed. In addition, according to the 2013 North American Industry Classification System, there were 1,154 certified public accountant (CPA) establishments, 628 non-CPA tax preparation establishments, and 1,187 non-CPA establishments offering accounting, bookkeeping, or billing services along with payroll services in Virginia.

Localities Particularly Affected. The proposed changes apply statewide.

Projected Impact on Employment. No impact on employment is expected.

Effects on the Use and Value of Private Property. No impact on the use and value of private property is expected.

Real Estate Development Costs. No impact on real estate development costs is expected.

Small Businesses:

Definition. Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

Costs and Other Effects. The Department of Taxation estimates that there are about 143,612 small businesses with employees in Virginia. In addition, almost all tax preparation or payroll service providers are small businesses. The proposed amendments do not impose costs on these entities, but will benefit them by elimination the inconsistencies between the statutes and the regulation.

Alternative Method that Minimizes Adverse Impact. No adverse impact on small businesses is expected.

Adverse Impacts:

Businesses. A small percentage of the entities this regulation applies to is believed to be non-small businesses. The proposed amendments do not impose any adverse impact on them.

Localities. The proposed amendments will not adversely affect localities.

Other Entities. The proposed amendments will not adversely affect other entities.

Agency's Response to Economic Impact Analysis: The Department of Taxation agrees with the Department of Planning and Budget's economic impact analysis.

Summary:

This regulatory action removes provisions that are no longer accurate due to several statutory changes and consolidates certain provisions that are currently repeated within the Virginia Administrative Code. The affected provisions deal with the due dates for filing amended tax returns and the definition of a final determination for purposes of determining when a taxpayer is required to file an amended return based on a change in any federal tax. This regulatory action does not reflect any change in current tax policy and will have no impact on the administration of any taxes.

23VAC10-20-180. Amended returns claiming a refund.

A. Filing.

1. Amended returns claiming a refund of any tax administered by the department Department of Taxation are governed by § 58.1-1823 of the Code of Virginia. Amended returns claiming a refund must be filed within three years from the last day prescribed by law for the timely filing of the original return or, if later, within 60 days from the final determination of any change or correction in the liability of the taxpayer for any federal tax upon which the Virginia tax is based.

2. The amended return shall supply all the information required in an original return and, in addition, the taxpayer must attach a statement explaining the changes made and the reasons for the changes. If the refund claim is due to a change in federal taxable income or estate, the taxpayer must furnish a copy of the Revenue Agent's Report or other appropriate notice that the change has been accepted by the Internal Revenue Service.

a. When a dealer is applying for a refund of sales tax, the dealer shall attach a list of the purchasers from whom the tax was collected and to whom the refund and interest, if allowed, will be paid.

b. When a consumer is applying for a refund of sales or use tax assessed against a dealer or contractor, the consumer shall identify the dealer or contractor, explain the circumstances surrounding the payment by the consumer, and explain why the claim for refund could not, or would not, be made by the dealer or contractor.

3. The time limit specified above applies only to amended returns claiming a refund and does not apply to amended returns showing a tax due. The period for assessing taxes due may vary for each type of tax and may also depend on circumstances such as fraud or failure to file a return.

4. 3. See § 58.1-9 of the Code of Virginia for provisions relating to filing a return by mail.

B. Final determination. For the purposes of this regulation §§ 58.1-311 and 58.1-1823 of the Code of Virginia, any one of the following shall be deemed a final determination of a change in liability for the federal tax:

1. Payment or refund of any federal income or estate tax, not the subject of any other final determination described in subdivision 2, 3, 4, or 5 of this subsection B. The payment of a federal income or estate tax is a final determination for Virginia purposes even though a refund suit may be pending or contemplated which that could result in another "final determination";

2. The receipt of an assessment or other notice that the amount of deficiency or overassessment stated on federal Form 870 or similar form has been agreed to by the IRS;

3. The expiration of the 90-day time period (150-day period in the case of notice addressed to a person outside the states of the union and the District of Columbia) within which a petition for redetermination may be filed with the U.S. United States Tax Court with respect to a statutory notice of deficiency issued by the Internal Revenue Service, if a petition is not filed with that court within such time;

4. A closing agreement entered into with the Internal Revenue Service under Section § 7121 of the Internal Revenue Code (26 USC § 1 et seq.). The "final determination" shall occur when the taxpayer receives notice of the signing by the Commissioner of Internal Revenue;

5. A decision by the U.S. United States Tax Court, U.S. District Court a United States district court, the U.S. Claims Court, U.S. Court of Appeals a United States court of appeals, or the United States Supreme Court that has become final, or the date the court approves a voluntary agreement stipulating disposition of the case.

C. Assessment. The denial in whole or in part of taxpayers a taxpayer's claim for refund, or the department's failure to act within three months, is treated as an assessment for the purpose of permitting a taxpayer to pursue other administrative and judicial remedies, but only as to matters first raised by the amended return. Therefore an amended return should not be filed if the claim for refund involves issues that were previously considered in the course of an audit, application for correction, or protective claim.

23VAC10-110-70. Report of change of federal taxable income. (Repealed.)

A. Report. If the amount of any individual's federal taxable income is changed or corrected by the Internal Revenue Service or other competent authority or as the result of a renegotiation of a contract or subcontract with the United States, such individual must report the change or correction to the department within 90 days from the date of the final determination of such change, correction, or renegotiation. In reporting a change, correction or renegotiation, the individual shall either concede its accuracy or state why such is erroneous.

B. Amended return. When any individual files an amended federal income tax return for any taxable year, he must also file an amended Virginia return for such taxable year. The amended return must be filed within 90 days of the filing of the complementary federal amended return, except that any amended return claiming a refund for overpayment of tax must be filed within 60 days of the final determination of any changes in his federal tax liability. (See 23VAC10-20-180.)

C. Final determination. For purposes of this section a "final determination" of a change in federal tax liability shall have the same meaning as set forth in 23VAC10-20-180.

23VAC10-115-110. Returns of estates and trusts.

A. Filing requirements. 1. Every resident estate or trust which that either is required to file a federal income tax return for the taxable year or which that has any Virginia taxable income for the taxable year must file an income tax return. If the return is for a fractional part of a year, the due date shall be determined as if the return were for a full 12-month period, that is, it shall be due by the 15th day of the fourth month after the close of the taxable year.

2. B. Every nonresident estate or trust having Virginia taxable income for the taxable year determined under 23VAC10-115-50 must file an income tax return.

3. C. The return must be accompanied by a copy of any federal fiduciary tax return filed for such taxable year.

B. Due date.

1. The return is due on or before May 1 of each year for fiduciaries filing on a calendar-year basis.

2. If the return is for a fiscal or fractional year, it is due on or before the 15th day of the fourth month after the close of the taxable year.

C. Who to file.

1. Deceased individual. The return for any deceased individual shall be made and filed by his executor, administrator, or other person charged with his property.

2. Fiduciary. The return for an estate or trust shall be made and filed by the fiduciary.

3. Two or more fiduciaries. If two or more fiduciaries are acting jointly, the return may be made by any one of them.

D. Report of change. If the amount of any fiduciary's federal taxable income is changed or corrected by the Internal Revenue Service or other competent authority or as the result of a renegotiation of a contract or subcontract with the United States, such fiduciary must report the change or correction to the department within 90 days from the date of the final determination of such change, correction, or renegotiation. In reporting a change, correction or renegotiation, the fiduciary shall either concede its accuracy or state why such is erroneous.

E. Amended return. When any fiduciary files an amended federal income tax return for any taxable year, it must also file an amended Virginia return for such taxable year. The amended return must be filed within 90 days of the filing of the complementary federal amended return, except that any amended return claiming a refund for overpayment of tax must be filed within 60 days of the final determination of any changes in its federal tax liability. (See 23VAC10- 20-180.)

F. Final determination. For purposes of this section a "final determination" of a change in federal tax liability shall have the same meaning as set forth in 23VAC10-20-180 B.

23VAC10-120-30. Report of change of federal taxable income. (Repealed.)

A. Report. If the amount of any corporation's federal taxable income is changed or corrected by the Internal Revenue Service or other competent authority or as the result of a renegotiation of a contract or subcontract with the United States, such corporation must report the change or correction to the department within 90 days from the date of the final determination of such change, correction, or renegotiation. In reporting a change, correction or renegotiation, the corporation shall either concede its accuracy or state why such is erroneous.

B. Amended return. When any corporation files an amended federal income tax return for any taxable year, it must also file an amended Virginia return for such taxable year. The amended return must be filed within 90 days of the filing of the complementary federal amended return, except that any amended return claiming a refund for over-payment of tax must be filed within 60 days of the final determination of any changes in its federal tax liability. (See 23VAC10-20-180.)

C. Final determination. For purposes of this section a "final determination" of a change in federal tax liability shall have the same meaning as set forth in 23VAC10-20-180 B.

VA.R. Doc. No. R17-4737; Filed October 12, 2016, 2:24 p.m.