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Virginia Tax Audits: Your Rights and Responsibilities

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Virginia Tax Audits: Your Rights and Responsibilities

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News and Events

Posted in on May 6, 2019

Virginia taxpayers are routinely audited on their state taxes. Just as the IRS performs its audits, the Virginia Department of Taxation also audits tax returns to ensure compliance with state tax law. It is important for Virginia taxpayers to know their rights during these audits. And since a Virginia tax audit is a serious process, it is just as important for taxpayers to be aware of their responsibilities.

Virginia Taxpayer Rights During and After State Tax Audits

Every taxpayer in Virginia has important legal rights when under audit. These include their rights under the Virginia Taxpayer Bill of Rights, in addition to appeal rights for unfavorable audit results.

Virginia Taxpayer Bill of Rights

Under the Virginia Taxpayer Bill of Rights, state taxpayers are guaranteed the following rights during an audit:

Right to be informed of the audit process, audit procedure, and appeal rights.

Right to have the audit conducted at a reasonable time and place.

Right to receive a clear explanation of any changes in tax liability resulting from the audit.

Appeal Rights

When a taxpayer disagrees with an audit result or penalty assessed by the Virginia Department of Taxation, they may file an appeal with the department. This departmental appeal must be filed within 90 days of the notice of assessment date. If this appeal is unsuccessful, the taxpayer may file an appeal in the state court system.

Common Triggers for Virginia Tax Audits

The Virginia Department of Taxation does not publicize its exact methodology for selecting returns for audit. However, some common triggers for Virginia state tax audits are the following:

Past Taxes Owed: A taxpayer who owes taxes from the past tax season, or even before that, can often expect to be audited.

Tax Return Mistakes: These mistakes can include minor ones, such as misspellings. They can also be more substantial mistakes, such as missing documentation to support claimed deductions or credits.

Cash-based Business: Dealing in cash will generally act as a red flag for tax authorities, so it is vital to have supporting documentation.

Missed or Late Tax Filings: In addition to being audited, the taxpayer will likely owe fees and penalties.

Virginia Tax Audit Process

A Virginia state tax audit generally begins with a notification letter from the Virginia Department of Taxation. The letter will identify a possible discrepancy in the taxpayer's return, as well as potential changes in the tax amount owed. The letter will also provide a deadline to respond with additional information or explanation, if the taxpayer disagrees with the findings.

The two main types of Virginia tax audits are desk audits and field audits.

Desk Audits: These audits are conducted by mail only.

Field Audits: These are on-site examinations of tax returns or records, conducted at scheduled times.

Speak With a Virginia Tax Attorney at Thorn Law Group

If you are being audited by the Virginia Department of Taxation, contact the Thorn Law Group to meet with a Virginia tax attorney. For a consultation, contact Kevin E. Thorn, Managing Partner, at 703-752-3752, or reach him by email at ket@thornlawgroup.com.

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News and Events Posted in on May 6, 2019 Virginia taxpayers are routinely audited on their state taxes. Just as the IRS performs its audits, the Virginia Department of Taxation also audits tax returns to ensure compliance with state tax law. It is important for Virginia taxpayers to know their rights during these audits.

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State Tax Implications of Federal Tax Reform in Virginia

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State Tax Implications of Federal Tax Reform in Virginia

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Key Findings

The new federal tax law cuts federal taxes for most filers in Virginia, but absent legislative action, many Virginians will experience an unlegislated increase in their state tax liability.

This additional liability is because federal tax reform broadened the tax base while reducing tax rates, with some of the base-broadening provisions-but not the corresponding rate reductions-flowing through to many states, including Virginia.

Anticipated changes in taxpayer behavior, including investment decisions and how taxpayers elect to file for federal tax purposes, will also impact Virginia revenues.

If lawmakers elect to avoid a state tax increase, the added revenue provides an opportunity to pay down reforms to Virginia's tax code.

Introduction

In Virginia, tax conformity has always been backward-looking, with each session yielding legislation to conform Virginia's tax code with the federal Internal Revenue Code (IRC) as it existed at the end of the previous tax year. These conformity updates happened like clockwork until 2018, when legislators and Governor Ralph Northam (D) conformed to the IRC as it existed on February 8, 2018, with one big exception: practically the entirety of the provisions of the federal Tax Cuts and Jobs Act of 2017.[1]

This means that despite the 2018 conformity date, many provisions of the new federal tax law have yet to be incorporated into Virginia's own system of taxation. Nevertheless, several consequential changes are transpiring even without state action, while others are likely to take effect with next year's conformity update. It is important to recognize, therefore, that while tax reform meant a tax cut for the vast majority of taxpayers at the federal level, the effect runs in the opposite direction on Virginians' state tax returns.

This short paper provides a brief overview of which provisions of the federal Tax Cuts and Jobs Act (TCJA) affect state tax liability in Virginia and offers a few recommendations for how Virginia policymakers can respond, particularly if they wish to avoid an unintentional increase in tax revenues. As in many other states, federal tax reform creates both an opportunity and an impetus for tax reform in Virginia-an opportunity because the new tax law provides the state with additional revenue which can be used to pay down reforms, and an impetus because, as changes in the federal tax code encourage additional domestic investment, policymakers may wish to position the Commonwealth to best compete for that investment.

General Overview

Each state has its own approach to taxation-its own combination of tax types, rates, and structures, and rules and exemptions-but even the most freewheeling state tax structures draw upon the federal tax code. This reality, always significant, has become far more pertinent with the implementation of the federal Tax Cuts and Jobs Act.[2]

Some states adopt large swaths of the federal tax code by reference; others use it as a starting point, then tinker endlessly; and still others incorporate federal provisions and definitions more sparingly. In some states, the federal tax code is mirrored; in others, echoed. The differences matter greatly, but so do the points of agreement. Virginia takes an expansive approach, incorporating federal definitions into the state tax code unless a different meaning is clearly required, and adopting by reference all provisions of the Internal Revenue Code touching state tax systems except those from which it expressly decouples.[3]

States conform to provisions of the federal tax code for a variety of reasons, but largely to reduce the compliance burden of state taxation. Doing so allows state administrators and taxpayers alike to rely on federal statutes, rulings, and interpretations, which are generally more detailed and extensive than what any individual state could produce.[4]

It provides consistency of definitions for those filing in multiple states and reduces duplication of effort in filing federal and state taxes. It permits substantial reliance on federal audits and enforcement, along with federal taxpayer data. It helps to curtail tax arbitrage and reduce double taxation. For the filer, it can make things easier by allowing the filer to copy lines directly from their federal tax forms. In the words of one scholar, federal conformity represents a case of "delegating up," allowing states to conserve legislative, administrative, and judicial resources while reducing taxpayer compliance burdens.[5]

Delegating up, of course, means ceding a certain amount of control, hence the myriad of ways that states modify or decouple from the Internal Revenue Code. Most states, including Virginia, stand to see increased revenue due to federal tax reform, with expansions of the tax base reflected in state tax systems while corresponding rate reductions fail to flow down. The extent to which this is true depends on how and when states conform.

Five Ways Federal Tax Reform Affects Virginia State Revenue

There are at least five broad categories of ways that federal tax reform can drive state revenue changes, and technically only one of them is contingent upon an updated conformity statute. In Virginia and most other states, however, the revenue implications are significantly larger with up-to-date conformity. The five sources of revenue changes are as follows:

1. Income starting point.

Some tax changes are incorporated by the state's choice of an income starting point. Calculations of Virginia taxable income begin with federal adjusted gross income,[6] the definition of which has changed slightly under the new tax law. These modifications, including the virtual elimination of the moving expense deduction, are now part of Virginia's tax system even though Virginia has not yet conformed to the Tax Cuts and Jobs Act.

2. Specific conformity provisions.

Virginia, like most states, follows federal treatment and definitions in many areas, from the parameters of the mortgage interest deduction to Section 179 small business expensing and many things in between. While some states conform selectively, Virginia adopts most of these provisions automatically, with a few provisions from which it expressly decouples (such as accelerated business depreciation, discussed later). Because Virginia begins with federal adjusted gross income rather than federal taxable income, moreover, the Commonwealth does not mirror the federal standard deduction or personal exemption. These provisions will not change unless Virginia conforms to the new law.

3. Filing uniformity requirements.

Thirty-one states require that taxpayers use identical filing statuses on their federal and state returns, meaning, for instance, that married couples which elect to file jointly for federal tax purposes could not avail themselves of the option of married filing separately on their state forms. Similarly, nine states and the District of Columbia require the choice to itemize or take the standard deduction to carry through from the federal to the state form. Since the optimal choice at the federal level may not also be optimal at the state level, mandating uniformity may result in higher state tax payments.

In Virginia, which links both filing status and itemization choices to the decisions made for federal filing purposes, additional revenue can be expected-even without a broader conformity update-because roughly two-thirds of those who previously itemized will now find it advantageous to take the more generous federal standard deduction. These taxpayers will lose their itemized deductions in Virginia as well, even though in many cases their state liability will be higher when shifting to the state's $3,000 standard deduction ($6,000 for joint filers).[7]

4. International income.

Some states incorporate what is known as Subpart F income into their tax base, which allows them to reap a short-term windfall from the "deemed" repatriation provision in the new federal law. Virginia is not among these states, so the effect of changes to the treatment of international income under the TCJA will be modest for Virginia tax purposes. However, the Commonwealth does conform to the establishment of a new participation exemption system for the taxation of foreign income, which should increase Virginia collections somewhat.[8]

5. Dynamic economic effects.

The new law changes incentive structures and favors additional investment.[9] All states, regardless of what they do about tax conformity, will reap the benefits of economic expansion brought about by federal tax reform, though the degree to which they participate in the additional economic activity depends on many factors, including the states' own tax codes.

New Federal Tax Provisions with Virginia Tax Impacts

As Virginia lawmakers grapple with the state tax code in the aftermath of federal tax reform, they should pay particular attention to certain provisions which have undergone a change due to the new federal law:

The personal exemption.

Virginia charts its own course on both the standard deduction and personal exemption-mostly. The Commonwealth's personal exemption is a $930 deduction for "each personal exemption allowable to the taxpayer for federal income tax purposes."[10] This introduces a certain amount of ambiguity, because the new federal law functionally eliminates the personal exemption by setting its value at $0 but does not remove it outright.[11] While taxpayers are unable to claim a now-worthless exemption on their new federal tax returns, technically they may still be eligible for the exemption.

The Virginia formulation of "allowable to the taxpayer for federal income tax purposes" allows for multiple possible interpretations in this new environment. One can be eligible for something without claiming it, but is the exemption allowable if it cannot be claimed? Similarly, does "for federal income tax purposes" mean something closer to "for purposes of filing and remitting your federal income tax" or "under the provisions of the Internal Revenue Code"? At present, the Virginia Department of Taxation is operating under the assumption that Virginia's personal exemption will continue to be available to taxpayers, but should lawmakers wish to ensure its preservation, resolving this textual ambiguity would be advisable. If policymakers wish the personal exemption to remain available, they should amend the code to make that clear.

The moving expense deduction.

Virginia follows the federal government in eliminating the moving expense deduction for all but military personnel on active duty who move pursuant to a military order. Because this is an above-the-line deduction, the change is in immediate effect in Virginia, increasing state revenues.

The mortgage interest deduction.

Virginia mirrors the new federal limitations on the mortgage interest deduction, and upon conformity, will only allow the deduction to be taken for interest on the first $750,000 in mortgage debt, down from the first $1 million. This change also increases state revenues.

The medical expense deduction.

Federal tax reform legislation retroactively expanded eligibility for the medical expense deduction for tax year 2017, making it available to taxpayers for whom medical expenses exceeded 7.5 percent of adjusted gross income, down from a standard threshold of 10 percent. This retroactive adjustment would not have been captured automatically, but was specifically adopted in Virginia's 2018 conformity bill.[12] This change reduces state revenues slightly.

The property tax deduction.

Much has been made of the new $10,000 cap on the state and local tax deduction, but less notice has been paid to its partial incorporation into many state tax codes, including Virginia's. While Virginia necessarily disallows the portion of the deduction provided for state income tax payments-which would be recursive-it does allow a deduction for local property taxes, which would be subject to a $10,000 cap under TCJA conformity. This change increases state revenues.

Section 179 small business expensing.

Under the new federal law, small businesses can deduct a larger share of their investments in the first year, with the cap increasing from $500,000 to $1 million and phaseout of the benefit beginning at $2.5 million, up from $2 million.[13] Virginia would conform to these changes, which improve the tax treatment of capital investment, making this the rare conformity provision which reduces Virginia tax collections.

Net operating losses.

Corporate income taxes are intended to fall upon net income (essentially profits), but because business cycles do not neatly follow the calendar, achieving this requires businesses to be able to offset gains in one year with losses from another. Virginia adopts the federal approach to the treatment of net operating losses, which changed under tax reform. Previously, losses could be carried forward for 20 years and back for two, with no caps on the amount carried forward or backward. With conformity, losses could only be carried forward-not back-and for an unlimited number of years, though under the new system, carryforwards cannot reduce tax liability by more than 80 percent in any given year.[14] This change increases state revenues.

Business interest deduction limitation.

At the federal level, businesses receive the benefit of full and immediate expensing of investments in machinery and equipment, but in return, receive less generous treatment of their net interest expenses.[15] This trade-off breaks down in Virginia, which expressly decouples from accelerated depreciation regimes like full expensing, but would conform to the new interest expense limitations, which restrict deductions for business interest. This change increases state revenues.

The Section 199 manufacturing deduction.

The Section 199 domestic production activities deduction, which was largely a manufacturing deduction but also had relevance to businesses engaged in construction, engineering, and agricultural processing, among other activities, has been eliminated at the federal level and, once Virginia conforms to the TCJA, will disappear at the state level as well, increasing state revenues.

The dividends received deduction.

The dividends received deduction has been reduced in value, with new provisions for foreign-source income. Virginia will incorporate these federal changes, increasing state revenue slightly.

Like-kind exchanges.

Virginia follows the federal government's lead in eliminating like-kind exchanges for personal property, another provision ameliorated by the policy of full expensing of machinery and equipment purchases at the federal level, but not offset in Virginia.

Responding to the New Law

Virginia lawmakers have a range of options available to them in the wake of federal tax reform. They can do nothing and reap additional revenue; they can seek to reverse certain changes to hold taxpayers harmless; or they can identify rate cuts or tax reforms intended to improve the Commonwealth's tax competitiveness while avoiding an unlegislated tax increase.

Many of the provisions which increase aggregate tax liability in Virginia represent the elimination of targeted tax preferences, making the restoration of the old status quo undesirable. Instead, Virginia policymakers wishing to avoid a net tax increase should use the new revenue to pay down more meaningful reforms.

They might, for instance, improve the state's treatment of capital investments, since full expensing is one of the more pro-growth elements of federal tax reform and represents the proper treatment of capital expenditures. They could opt for modest rate reductions or the consolidation of state income tax brackets. They could eliminate the state's marriage penalty under which joint filers pay more than they would if they filed separately, and which is partially, but not completely, addressed by a Spouse Tax Adjustment credit. Simply doubling the state's income tax brackets for married filers, as done in most other states, would go a long way to simplifying what amounts to a complicated band-aid put in place years ago.

To the extent that state revenue agencies are uncertain about the state revenue effects of federal tax reform, reforms could be implemented or phased in on a revenue-contingent basis using tax triggers, ensuring revenue adequacy and only implementing reforms for which additional revenue is available.

Inaction results in higher taxes, and in ways which do not necessarily abide by the preferences of policymakers even if they were to develop revenue-raisers intentionally. Federal tax reform lowers federal tax burdens for most taxpayers. It also gives Virginia lawmakers an opportunity to improve the Commonwealth's tax competitiveness -but only if they act.

Notes

[1] Va. Gen. Assem., House Bill 154 and Senate Bill 230, 2018 Reg. Sess.

[2] This section has been adapted from a longer paper on tax conformity. See Jared Walczak, "Tax Reform Moves to the States: State Revenue Implications and Reform Opportunities Following Federal Tax Reform," Tax Foundation, Jan. 31, 2018, https://taxfoundation.org/state-conformity-federal-tax-reform/.

[3] VA Code § 58.1-301.

[4] Kirk J. Stark, "The Federal Role in State Tax Reform," Virginia Tax Review 30 (December 2010), 423, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1718606.

[5] Ruth Mason, "Delegating Up: State Conformity with the Federal Tax Base," Duke Law Journal 62:7 (April 2013), https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=3382&context=dlj.

[6] VA Code § 58.1-322.

[7] VA Code § 58.1-322.03.

[8] KPMG, "Tax Reform - KPMG Report on New Tax Law: Analysis and Observations," Feb. 6, 2018, 108-109, https://home.kpmg.com/content/dam/kpmg/us/pdf/2018/02/tnf-new-law-book-feb6-2018.pdf.

[9] Tax Foundation, "Preliminary Details and Analysis of the Tax Cuts and Jobs Act," Dec. 18, 2017, https://taxfoundation.org/final-tax-cuts-and-jobs-act-details-analysis/.

[10] VA Code § 58.1-322.03.

[11] This policy choice was driven by the constraints of operating under budget reconciliation procedures; similarly, the individual mandate penalty was set at $0 rather than being eliminated outright, which would have exceeded what can be accomplished in a reconciliation bill.

[12] Va. Gen. Assem., House Bill 154 and Senate Bill 230, 2018 Reg. Sess.

[13] Jared Walczak, Joseph Bishop-Henchman, and Nicole Kaeding, "Details of the Conference Report for the Tax Cuts and Jobs Act," Tax Foundation, Dec. 15, 2017, https://taxfoundation.org/conference-report-tax-cuts-and-jobs-act/.

[15] Stephen J. Entin, "Conference Report Limits on Interest Deductions," Tax Foundation, Dec. 17, 2017, https://taxfoundation.org/conference-report-limits-interest-deductions/.
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Virginia: State Tax Implications of Federal Tax Reform | Tax Foundation

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The new federal tax law cuts federal taxes for most filers in Virginia, but absent legislative action, many Virginians will experience an unlegislated increase in their state tax liability. This additional liability is because federal tax reform broadened the tax base while reducing tax rates, with some of the base-broadening provisions-but not the corresponding rate reductions-flowing through to many states, including Virginia.

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How it works:

Virginia tax rates increase with income: 2% up to $3,000; 3% from $3,000 to $5,000; 5% from $5,000 to $17,000; and 5.75% for income over $17,000. Both incomes reported on jointly filed returns benefit from the lower tax rates if the STA is used.

Married couples filing jointly on Form 760 may reduce their tax by up to $259 with the STA if each spouse received income during the taxable year.

Joint taxable income must be over $3,000 and both parties must have taxable income to benefit from this adjustment.

Two-income couples filing a joint return will not pay more tax than the combined tax that would be due if separate returns were filed.

Example:

A couple has combined Virginia taxable income of $47,000. One spouse's taxable income is $35,000 and the other spouse's taxable income is $12,000. Without the STA, their Virginia tax is $2,445. With the STA, both spouses benefit from the lower tax rates. Using the STA Calculator, the couple computes the STA of $220, reducing their taxes to $2,225.

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Virginia tax rates increase with income: 2% up to $3,000; 3% from $3,000 to $5,000; 5% from $5,000 to $17,000; and 5.75% for income over $17,000. Both incomes reported on jointly filed returns benefit from the lower tax rates if the STA is used.

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1934 Old Gallows Road, Suite 350 Tysons Corner VA 22182

Phone: (703) 752-3752

www.virginia-tax-lawyer.com

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Created by FindLaw's team of legal writers and editors.

States collect revenue from a variety of sources, including retail sales tax and/or personal income tax. These funds are used to pay for schools, law enforcement, roads, parks, and other shared community resources.
Taxes In The Commonwealth Of Virginia
Virginia has a progressive income tax, with a 2 percent tax rate on the first $3,000 of income, all the way up to 5.75 percent for taxable income over $17,000. Virginia uses federal income as a basis for calculating state income tax, as do many other states.
Do I Need To File A Return?
That depends. Virginia individual income tax applies to income received from all sources for Residents and Virginia sources for Nonresident individuals. A return must be filed if you received Virginia source income and meet the following general requirements:

Are required to file a federal income tax return;

Are single with income in excess of $11,950; or

Are married filing jointly with combined income in excess of $23,900; or

Are married filing separately with income in excess of $11,950.

Is There A Penalty If I File Late?

Yes, you would owe a penalty for late filing if your return shows a balance due and the return was filed after the extension period ends. Generally, you will compute a late filing penalty of 30 percent of the tax due with your return.

If you file your return within six (6) months after the due date, and the tax owed is more than 10 percent of your total tax liability, you must compute an extension penalty on the balance of tax due. The extension penalty is applied at the rate of two (2) percent per month, or part of the month, from the due date through the date your return is filed.

The main provisions of Virginia's personal income tax laws are listed in the following chart. See FindLaw's extensive Tax Law section for additional resources.

Code Section

58.1-320, et seq.

Who is Required to File

Individuals, estates, and trusts; Partnerships are not taxable; Estates and trusts are subject to tax on their Virginia taxable income; Local taxes may be required

Rate

First $3,000, 2%; Next $2,000, 3%; Next $12,000, 5%; Over $17,000, 5.75%

Federal Income Tax Deductible

No

Federal Income Used as Basis

Yes

Note: Research the Law Virginia Personal Income Tax Laws: Related Resources
State laws are constantly changing -- contact a Virginia tax law attorney or conduct your own legal research to verify the state law(s) you are researching.

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Virginia Personal Income Tax Laws - FindLaw

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Created by FindLaw's team of legal writers and editors. States collect revenue from a variety of sources, including retail sales tax and/or personal income tax. These funds are used to pay for schools, law enforcement, roads, parks, and other shared community resources.

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Our income tax calculator calculates your federal, state and local taxes based on several key inputs: your household income, location, filing status and number of personal exemptions. Also, we separately calculate the federal income taxes you will owe in the 2019 - 2020 filing season based on the Trump Tax Plan.

How Income Taxes Are Calculated

First, we calculate your adjusted gross income (AGI) by taking your total household income and reducing it by certain items such as contributions to your 401(k).

Next, from AGI we subtract exemptions and deductions (either itemized or standard) to get your taxable income. Exemptions can be claimed for each taxpayer as well as dependents such as one's spouse or children.

Based on your filing status, your taxable income is then applied to the the tax brackets to calculate your federal income taxes owed for the year.

Your location will determine whether you owe local and / or state taxes.

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Last Updated: January 1, 2020

When Do We Update? - We regularly check for any updates to the latest tax rates and regulations.

Customer Service - If you would like to leave any feedback, feel free to email info@smartasset.com.

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Jennifer Mansfield, CPA Tax

Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset's tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.

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Taxes in Virginia

Virginia State Tax Quick Facts

Income tax: 2% - 5.75%

Sales tax: 5.3% - 7%

Property tax: 0.80% average effective rate

Gas tax: 21.95 cents per gallon of regular gasoline, 26.02 cents per gallon of diesel

The state of Virginia has a progressive income tax, with rates ranging from 2% to a top rate of 5.75%. Of the 43 states with a personal income tax, that top rate is slightly lower than average. The Commonwealth's sales tax ranks near the bottom of the U.S. too. In fact, when taking into account both state and local rates, Virginia's average of 5.65% is tenth-lowest in the country. The property and fuel taxes in the state are likewise lower than the national averages.

A financial advisor in Virginia can help you understand how taxes fit into your overall financial goals. Financial advisors can also help with investing and financial plans, including retirement, homeownership, insurance and more, to make sure you are preparing for the future.

Virginia Income Taxes

There are four tax brackets for filers in Virginia. While low earners pay lower marginal rates, the top bracket begins at just $17,000 in taxable income. This means most taxpayers in Virginia will pay the top rate of 5.75%. The table below shows the tax brackets for Virginia filers.

Income Tax Brackets

Rates apply to Virginia taxable income, which is based on federal adjusted gross income (AGI). Federal deductions will generally match your Virginia deductions (with the exception of the deduction for state income taxes).

In Virginia, you can only claim itemized deductions if you did so on your federal return. Conversely, if you did claim itemized deductions federally, you must itemize your deductions on your Virginia return. That means you cannot claim the Virginia standard deduction of $4,500 ($9,000 for joint filers), even if your itemized deductions are less than that standard deduction.

Additionally, there are several categories of income that are taxable at the federal level but may be subtracted from your taxable income in Virginia. Among the types of income you can subtract from your AGI to calculate taxable income are disability income, Virginia lottery prizes, Virginia college savings plan distributions and Virginia National Guard income. On the other hand, certain types of income, most notably capital gains, are taxed as regular income and must be included in your state return.

Virginia Sales Tax

The base, statewide sales tax rate of 4.3% in Virginia is combined with a statewide local rate of 1%, meaning the effective floor for sales taxes in Virginia is 5.3%. In addition to that 5.3% rate, localities in the Northern Virginia and Hampton Roads regions collect a 0.7% sales tax, bringing the total in those areas to 6%. Communities in the Historic Triangle collect a 1.7% tax, which raises the sales taxes here even further to 7%.

The table below shows the sales tax rates for the counties of Virginia. Additionally, many cities are "independent cities," which means they are not in any county. These have also been included below.

Sales Tax Rates

Virginia has a separate rate for most food items: 2.5% for unprepared food of the sort found in a grocery store and between 4% and 6.5% for prepared foods. Most types of medicine, including nonprescription drugs, are exempt from sales tax in Virginia.

There is one three-day sales tax holiday in Virginia, which takes places during the first weekend in August. During the holiday, three different types of products, up to a certain price, may be purchased free of sales taxes:

Hurricane preparedness equipment (up to $60 per item) and home generators (up to $1,000 per item)

Clothing (up to $100 per item) and school supplies (up to $20 per item)

Energy Star products, up to a maximum price of $2,500

Virginia Property Tax

The average effective property tax rate in Virginia is 0.80%, 18th-lowest in the country. That means that, on average, Virginians pay 0.80% of their home value in property taxes each year.

However, since property taxes in Virginia are assessed and collected at the local level by county and city governments, that rate varies depending on location. The highest effective property tax rate in Virginia can be found in the city of Manassas Park, which has an effective rate of 1.30%. The lowest effective rate is in Buchanan County at 0.42%.

If you're looking to refinance your home or purchase a new one, take a look at our Virginia mortgage rates guide, where you'll find information on getting a mortgage and mortgage rates in each county of Virginia.

Virginia Estate Tax

Virginia's estate tax was repealed on July 1, 2007. Estates of decedents whose death occurred after that date are not required to file an estate tax return.

Virginia Capital Gains Tax

Capital gains (from the sale of a home, for example) in Virginia are taxed as regular income, which means they will likely face the top rate of 5.75%.

Virginia Gas Tax

The state tax on regular gas in Virginia is 21.95 cents per gallon. That is eighth-lowest in the nation.

Photo credit: flickr

Eight U.S. Presidents were born in Virginia, more than any other state.

The Virginia General Assembly, which has been in existence since 1619, is the oldest law-making body in the Americas.

The largest city in Virginia is Virginia Beach, with about 445,000 residents.

Calculate Your Income Taxes in These Other States

Places with the Lowest Tax Burden

Are you curious how your tax burden stacks up against others in your state? SmartAsset's interactive map highlights the counties with the lowest tax burden. Scroll over any county in the state to learn about taxes in that specific area.
Methodology
To find the places with the lowest tax burdens, SmartAsset calculated the amount of money a specific person would pay in income, sales, property and fuel taxes in each county in the country.

To better compare income tax burdens across counties, we used the national median household income. We then applied relevant deductions and exemptions before calculating federal, state and local income taxes.

In order to determine sales tax burden, we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a county by the household income after taxes. This balance is then multiplied by 35% to estimate the sales tax paid.For property taxes, we compared the median property taxes paid in each county.

For fuel taxes, we first distributed statewide vehicle miles traveled to the county level using the number of vehicles in each county. We then calculated the total number of licensed drivers within each county. The countywide miles were then distributed amongst the licensed drivers in the county, which gave us the miles driven per licensed driver. Using the nationwide average fuel economy, we calculated the average gallons of gas used per driver in each county and multiplied that by the fuel tax.

We then added the dollar amount for income, sales, property and fuel taxes to calculate a total tax burden. Finally, each county was ranked and indexed, on a scale of 0 to100. The county with the lowest tax burden received a score of 100 and the remaining counties in the study were scored based on how closely their tax burden compares.
Sources: US Census Bureau 2018 American Community Survey, Government Sources, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration, SmartAsset

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Virginia Income Tax Calculator - SmartAsset

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Our income tax calculator calculates your federal, state and local taxes based on several key inputs: your household income, location, filing status and number of personal exemptions. Also, we separately calculate the federal income taxes you will owe in the 2019 - 2020 filing season based on the Trump Tax Plan.

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The Foreign Account Tax Compliance Act was passed by the federal government of the United States in 2010 as a part of a national and an international effort to fight tax evasion. The Foreign Account Tax Compliance Act, or FATCA as it is also called, was passed as a part of the Hiring Incentives to Restore Employment (HIRE) act, but the law has been controversial since its passage because of the substantial burden that the law imposes upon banks, upon offshore investors and even upon expatriates who happen to be living abroad and who just want to bank where they live.

If you currently have any money invested in a financial institution that is located outside of the United States, if you have held money in an account at a financial institution outside of the United States in recent years, or if you plan to hold money at a financial institution outside of the United States in the future while still remaining connected to this country and still having ongoing tax obligations, it is important that you have a full understanding of how FATCA works and of how this complex law can impact you.

Thorn Law Group has helped more than 500 clients with legal issues related to the Foreign Account Tax Compliance Act and related to other similar tax obligations. We have unparalleled experience advising offshore investors and expatriates on FATCA compliance and advising them on the steps that must be taken as a result of a failure to comply.

Our legal professionals come to your case with backgrounds working for the IRS as tax attorneys and with backgrounds working with the U.S. tax court, as well as with extensive experience helping taxpayers to resolve criminal and civil tax cases that the IRS has initiated against them. Our firm is a trusted resource for major news publications including the Wall Street Journal, and we have proved time-and-again that we have the knowledge to provide the type of comprehensive advice that clients need to comply with the complex tax regulations - such as FATCA -- that govern the world of offshore financial investment accounts

The stakes are high because the penalties can be grave if you have not complied fully with FATCA, so you should give Kevin Thorn, a Virginia FATCA attorney, a call at our firm right away. We can explain everything that you need to know about the Foreign Account Tax Compliance Act and we can provide you with personalized help. We will assist you both with your reporting requirements and also with voluntary disclosure programs that you could potentially take part in if you failed to fulfill these reporting requirements in the past. Give us a call today to find out more about the assistance that we can offer in helping you avoid financial loss from the IRS.

What is FATCA and What Does it Require of U.S. Taxpayers?

The Foreign Account Tax Compliance Act aims to combat tax evasion through the use of offshore investment accounts by requiring taxpayers who hold financial assets at certain financial institutions outside of the U.S. to report their assets to the IRS using Form 8938.

Foreign financial institutions are also required to provide information to U.S. tax authorities. Banks, brokers, some insurance companies and a variety of other financial institutions are all subject to FATCA reporting requirements and must submit the required information to avoid financial sanctions being imposed by the United States.

FATCA reporting requirements are distinct from and are separate from requirements to file a Report of Foreign Bank and Financial Accounts (FBARs). If you have offshore funds, you may be required to both comply with FATCA and submit Form 8938 as well as to comply with the rules for submitting FBARs.

Thorn Law Group knows the laws applicable to taxpayers and the laws applicable to foreign financial institutions where U.S.-connected people bank. If you have offshore investments, we will work with you to determine if you should have filed reports in the past under FATCA and to determine what your current obligations are under the law. We will also discuss the risks if you are not in compliance with FATCA's reporting rules but if your bank reports your offshore accounts to the IRS. An experienced attorney at our firm will work with you to create an appropriate plan to lessen any consequences that could result from past non-compliance.

How are Taxpayers Impacted?

All U.S. connected individuals who wish to maintain offshore accounts are impacted by FATCA if they are subject to its reporting requirements. Among the taxpayers who are most affected are expatriates who are living in foreign countries and who wish to open bank accounts in the country where they reside.

Some foreign banks, in an effort to avoid dealing with complexities associated with reporting U.S. connected accounts, have simply stopped allowing American citizens to open financial accounts of any type at their institution. Foreign financial institutions have also indicated their intent to close accounts of U.S. affiliated accountholders in an effort to not have to comply with burdensome, costly, and time-consuming bureaucratic requirements for reporting. When expatriates cannot bank in the country they reside in, this causes significant hardship and makes doing basic tasks like cashing a check or paying online bills downright impossible.

Those who own property abroad and who wish to maintain foreign accounts to cover property costs -- or investors who simply wish to diversify their investments by keeping money offshore -- also can experience difficulty finding a willing financial institution. Once a financial institution has been found, complying with reporting requirements after successfully opening an account is also vital.

When Does Information Need to be Reported to the IRS and What Must You Disclose?

FATCA does not require every single taxpayer with a foreign bank account to file a report with the IRS. Taxpayers must meet reporting thresholds, which vary depending upon whether the taxpayer lives abroad and which vary depending upon income and account value:

If you live in the United States and you are single, or file your taxes as married filing separately, you must submit Form 8938 to the IRS if you have more than $50,000 in foreign financial assets at the end of the year. If you file your taxes as married filing jointly, you are required to submit this form if you have more than $100,000 in funds in an offshore account at the end of the year.

If you live abroad and you are single or you file your taxes as married filing separately, you must submit Form 8938 if you have more than $200,000 in foreign financial assets at the end of the year. If you are married and file your taxes as married filing jointly, you only must submit a report of your foreign bank account if the balance at the end of the year is more than $400,000. However, if you have more than $600,000 in the account at any time during the year for married couples, or $300,000 for singles, you also must make a report.

As you can see, those who live abroad have higher reporting thresholds. You are defined for IRS purposes as living abroad, rather than living in the United States, if you have a tax home in a foreign country and if you have been present in that foreign country (or in other foreign countries) for at least 330 total days out of the prior year-long calendar period.

The higher reporting thresholds aim to make it easier for expatriates to be able to bank, but unfortunately many banks still decline to allow U.S. connected persons to open accounts at foreign financial institutions because of concern that they could inadvertently end up in violation of FATCA or because of concerns associated with the cost and time of making reports.

What if You Don't Comply with Your Filing Obligations?

A failure to comply with your reporting obligations under the Foreign Account Tax Compliance Act can have dire financial consequences. Failing to submit a mandatory Form 8938 could result in:

A $10,000 penalty for failure to file.

An additional penalty of as much as $50,000 if you are notified by the IRS of your failure and you continue to not file Form 8938.

A 40 percent penalty assessed on assets that were not disclosed and on any understatement of taxes that is attribute to the assets that were not disclosed.

The IRS has a long time to pursue action against you in order to try to obtain the fees that are associated with your failure to comply with FATCA. If you file a return and you fail to report to the IRS more than $5,000 in income attributed to your undeclared foreign financial assets, the statute of limitations for the IRS to act is extended to a six-year period following your return on which you failed to disclose.

If you do submit Form 8938 as required but you fail to properly report foreign assets on this form, the statute of limitations for the IRS to take action is extended to three years from the time that you provided your incomplete report to the IRS.

However, if you had reasonable cause for your failures, as determined on a case-by-case basis, the statute of limitations will only be extended for the items on the tax return that are directly related to the failure to report. The statute of limitations would not be extended for any other civil or criminal actions that the IRS might wish to pursue after reviewing your returns.

What Should You Do If You're Not Current on Filing Obligations

If you are not in compliance with the rules for reporting your offshore accounts, you could have a serious problem because of the substantial penalties that you're looking at.

You also need to keep in mind that foreign financial institutions are also subject to reporting requirements and are under a lot of pressure to work with the IRS. The Swiss Bank Program, for example, gives foreign financial institutions the chance to come clean and avoid criminal prosecution by giving the IRS details on U.S. account holders. Because of the FATCA reporting mandates and the other strong incentives in place, your bank has probably given your information to the IRS already or will be giving it to the IRS.

You typically want to take part in a voluntary disclosure program before the IRS discovers your non-compliance with FATCA. A voluntary disclosure program, such as the Offshore Voluntary Disclosure Program, gives you the chance to let the IRS know of your past failure to follow reporting rules. In exchange for you actually coming forward on your own and admitting to not following the rules, the IRS is more lenient. You will benefit from facing a reduced civil penalty and will be able to avoid criminal prosecution for tax-law violations associated with your failure to follow reporting rules.

There are different kinds of amnesty programs that you could take part in by essentially confessing your failure to report your offshore accounts, and these programs are not interchangeable. For example, you could participate in streamlined filing compliance procedures, such as the streamlined procedures which had been made available to Americans residing offshore, or you could participate in programs for either willful or non-willful violators.

How Can a FATCA Attorney Help You?

A FATCA attorney at Thorn Law Group can provide you with personalized help with FATCA compliance issues. Whether you live in the U.S. or abroad, we can explain your obligations and help you to comply with the Foreign Account Tax Compliance Act. We can also provide assistance with making your reports, or with determining the best course of action to resolve legal issues associated with past non-compliance.

The legal team at Thorn Law Group has more than 80 years of combined experience representing clients with tax issues and we have been assisting clients with FATCA issues since the law was passed. To find out more, give us a call today.

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The Foreign Account Tax Compliance Act was passed by the federal government of the United States in 2010 as a part of a national and an international effort to fight tax evasion.

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Although most tax disputes are resolved through the IRS audits and appeals procedure, if a favorable outcome cannot be achieved administratively, taxpayers have the right to litigate their cases in the federal court system. The United States Tax Court is the most common forum in which these types of cases are litigated. Cases involving IRS disputes can also be brought before the United States District Court and the United States Court of Federal Claims. Litigating a case in any of these federal courts is a challenging process and a successful result often hinges upon the skills of an experienced federal tax litigator.

Thorn Law Group's team of trial lawyers specialize in IRS federal tax litigation. We have decades of experience successfully representing clients during the IRS tax audit, appeals and litigation processes. Our clients include individual taxpayers, corporations, partnerships, trusts, estates, high net worth individuals and other entities in the United States and abroad. The legal professionals at our firm worked for the IRS and the U.S. Tax Court before entering private practice. This experience gives each tax lawyer at our firm a strategic advantage when guiding clients through complex federal court procedures.

Selecting the Best Forum for IRS Federal Tax Litigation

At Thorn Law Group, a tax attorney will carefully review your case in order to advise you on the best forum to litigate your IRS tax dispute. Each attorney at our firm is intimately familiar with the rules and procedures for litigating in the federal courts. We understand the unique differences among the courts and the intricacies of federal tax laws.

U.S. Tax Court

The majority of IRS federal tax cases are brought before the U.S. Tax Court. The Tax Court is a specialty court that exclusively hears tax law cases. Cases are tried before a single judge with expertise in tax law. In this forum, taxpayers are not required to prepay the proposed tax deficiency before litigating. Payment is not required until the decision of the Tax Court has been entered and becomes final, including any and all appeals of the Tax Court's decision. Appeals from the U.S. Tax Court are made to the U. S. Circuit Court of Appeals.

U.S. District Court

In order to bring a case before a U.S. District Court, taxpayers must exhaust all IRS administrative remedies and prepay the disputed tax deficiency. The U.S. District Courts are the only venue in which taxpayers may try their case before a jury. Appeal of a decision by a district court must be made to the Circuit Court of Appeals for the Circuit in which the district court lies.

U.S. Court of Federal Claims

The U.S. Court of Federal Claims only hears cases against the U.S. government. Any person, regardless of citizenship, can file a tax refund suit against the United States in the Court of Federal Claims. The Court of Federal Claims does not hear jury trials; rather, cases are tried before a single judge.

Thorn Law Group Litigates All Types of IRS Tax Disputes

The attorneys at Thorn Law Group have successfully represented clients before the U.S. Tax Court and other federal courts in all types of tax disputes, including income tax problems, payroll tax problems, valuation disputes, TEFRA litigation, excise tax problems, tax collection, tax penalties, and estate tax cases. Our legal team handles all aspects of IRS tax audits and litigation, including:

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Although most tax disputes are resolved through the IRS audits and appeals procedure, if a favorable outcome cannot be achieved administratively, taxpayers have the right to litigate their cases in the federal court system. The United States Tax Court is the most common forum in which these types of cases are litigated.

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With Thorn Law Group, you can have one of our trusted business tax lawyers on your side for any tax related issues. Call our Virginia office today!

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The tax law attorneys at Thorn Law Group aggressively represent individual taxpayers and businesses throughout Virginia in criminal tax matters.

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Virginia Tax is committed to keeping you informed as the coronavirus/ COVID-19 crisis continues to evolve. We're continuing to process returns and issue refunds as usual. We will update this page as the situation develops.

Relief for Taxpayers Affected by Ongoing Coronavirus Pandemic
For a quick overview of all COVID-related tax relief for individual income taxpayers, watch our video here.
Governor Northam has outlined several steps to provide tax relief to citizens during this time:

Additional time to pay your income tax

Individual and corporate income tax payments are now due June 1, 2020.

Applies to payments originally due between April 1 and June 1, 2020.

Individual and corporate taxable year (TY) 2019 tax due payments

Individual and corporate extension payments for TY 2019

First estimated income tax payments for TY 2020

No penalties, interest, or addition to tax will be charged if payments are made by June 1, 2020.

Virginia has an automatic 6-month extension to file your income tax (7 months for certain corporations). If you file during the extension period, make sure you still pay any taxes owed by June 1, 2020 to avoid penalties.
For more information:
Additional time to file and pay your February sales tax

Businesses impacted by coronavirus can request an extension of the due date for filing and payment of their February 2020 sales tax return due March 20, 2020, for 30 days. When granted, businesses will be able to file and pay no later than April 20, 2020 with a waiver of any penalties and interest.
For more information:
We have received reports of increased activities from scammers exploiting the current lack of stability caused by the COVID-19 pandemic. To avoid falling victim to schemes from phishing, fraud, and ransomware, please take note of these general reminders for protecting your information:

Be suspicious of unsolicited requests for sensitive information.

Be wary of surprise communications with links, attachments, buttons, etc.

Do not let attackers use emotional stressors to coax you into hasty actions.

When in doubt, call the organization the person claims to be representing using a publicly available phone number.

Find additional details about avoiding Coronavirus scams, especially those tied to the federal economic impact payments, from the IRS here.

Stay Informed

Cashier's Office Closed

Due to guidance regarding social distancing our cashier's office is now closed.

At this time, we can't accept cash payments. See tax.virginia.gov/payments for payment options.

You can drop off checks and money orders to our drop box located at 1957 Westmoreland St., Richmond. Please include form CP-1 (found at the drop box) with your payment.

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Virginia Tax is committed to keeping you informed as the coronavirus/ COVID-19 crisis continues to evolve. We're continuing to process returns and issue refunds as usual. We will update this page as the situation develops. For a quick overview of all COVID-related tax relief for individual income taxpayers, watch our video here.

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What Happens During an IRS Small Business Audit?

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What Happens During an IRS Small Business Audit?

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What Happens During an IRS Small Business Audit?

If you own a small business, there is a good chance that at some point you will hear from the Internal Revenue Service (IRS). The IRS regularly audits small businesses, and in March 2020 it established a new Fraud Enforcement Office within its Small Business/Self Employed Division that is tasked specifically with enforcing small businesses' reporting and payment obligations. Read on for an explanation of what small business owners can expect during the audit process.

There are Several Common Issues in IRS Small Business Audits

When facing an IRS audit, the first question that small business owners need to answer is, "Why is my business being audited?" The IRS vigorously enforces taxpayers' reporting and payment obligations, and it pursues taxes, interest and penalties for all types of violations. This includes, but is by no means limited to, violations such as:

Failing to file quarterly or annual returns

Failing to report taxable income from all sources

Claiming fraudulent deductions or losses

Maintaining fraudulent books and records

Failing to pay all amounts owed to the IRS

Depending on the circumstances involved an IRS inquiry can either be civil or criminal in nature. While audits are civil proceedings, if an audit reveals evidence of intentional tax fraud or tax evasion, IRS Criminal Investigations (CI) may get involved to pursue criminal charges.

The IRS Conducts Three Types of Small Business Audits

The procedures involved in an IRS audit depend on the type of audit the IRS chooses to pursue. The three types of IRS audits are: (i) correspondence audits, which are conducted by mail; (ii) office audits, which require the business owner to meet with an IRS agent in person at an FBI field office; and, (iii) field audits, during which IRS agents will come to the business's offices to examine its books and records.

Each type of audit is very different, and each generally serves a different purpose. Correspondence audits are typically used to obtain additional information in order to substantiate businesses' tax returns, while office and field audits tend to involve the types of issues listed above. Additionally, while correspondence audits can lead to additional tax liability, office and field audits are more likely to result in substantial interest and penalties.

IRS Small Business Audits Can Have a Variety of Different Outcomes

An IRS small business audit can have several different outcomes. In a best-case scenario, the audit will simply confirm that the business's returns are accurate and no additional action or payment will be required.

However, audits can also result in determinations of additional liability; and, as noted above, in some cases they can trigger criminal tax fraud investigations. In these situations, small businesses and their owners can face significant risk, and they will need to engage experienced legal counsel in order to dispute the IRS's allegations. If an audit results in an unfavorable determination, it may be necessary to file an appeal with the IRS or in federal district court-although it will be necessary to first assess the potential grounds for filing an appeal with the assistance of the company's Virginia tax attorney.

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What Happens During an IRS Small Business Audit?

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What Happens During an IRS Small Business Audit? If you own a small business, there is a good chance that at some point you will hear from the Internal Revenue Service (IRS). The IRS regularly audits small businesses, and in March 2020 it established a new Fraud Enforcement Office within its Small Business/Self Employed Division that is tasked specifically with enforcing small businesses' reporting and payment obligations.

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While hiding funds offshore has become difficult, there are still trillions of dollars in wealth invested in offshore tax havens around the world. In fact, the Tax Justice Network recently released a Financial Secrecy Index that estimates $32 trillion is invested in offshore tax havens. The Financial Secrecy Index also listed the top 10 tax offshore tax havens. According to the Financial Secrecy Index, the 10 top locales for investing offshore include:

Switzerland

More than half of the $6.5 trillion held by Swiss financial institutions comes from abroad. Switzerland has long been a top destination from investors seeking an offshore tax haven and Swiss banks have captured 28 percent of the global offshore financial services market.

The United States

The U.S. has moved up into second place from third place last year, and this is the third year in a row that the U.S. has jumped up on the list. The U.S. now has 22.4 percent of the market for global offshore financial services, up from 19.6 percent of the market in 2015. Delaware, Nevada, and Wyoming are especially popular destinations for offshore investing.

The Cayman Islands

The Cayman Islands has more than 95,000 registered companies, making it a very popular offshore destination for those who wish to create foreign corporations. The Caymans financial institutions hold a total of $1.4 trillion in funds spread across around 200 banks.

Hong Kong

Hong Kong is a very popular offshore tax haven catering to people in China and North Asia. Around $2.1 trillion in assets are managed in Hong Kong's banks.

Singapore

Singapore is popular with South Asia, in contrast to Hong Kong. It's equal to the Cayman Islands in terms of its secrecy rating and there are an estimated $1.8 trillion in assets being held in Singapore.

Luxembourg

There are an estimated 143 banks in Luxembourg and more than $800 billion is invested within these financial institutions. A total of 12 percent of the global market share for offshore financial services has been captured by Luxembourg.

Germany

Germany's economy isn't focused on offshore investing as many other places on the list, but it has still become a top destination for offshore investors and controls five percent of the market for global financial products.

Taiwan

Although Taiwan has made the list, the exact amount of money held in Taiwan is unclear because the One China policy means Taiwan doesn't provide statistics to the International Monetary Fund.

United Arab Emirate of Dubai

Dubai is in the top 10 because of its strong reputation for secrecy and because extensive amounts of oil wealth are held in Dubai's financial institutions.

Guernsey

Around .5 percent of all global offshore financial services are controlled by Guernsey.

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While hiding funds offshore has become difficult, there are still trillions of dollars in wealth invested in offshore tax havens around the world. In fact, the Tax Justice Network recently released a Financial Secrecy Index that estimates $32 trillion is invested in offshore tax havens.

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Corporations are required to file and pay all annual income tax returns, estimated payments, and extension payments electronically. See How to File and Pay below for payment options.
When to file

Calendar-year filers: April 15

Fiscal-year filers: 15th day of the 4th month following the close of your taxable year

Nonprofits: 15th day of the 6th month following the close of your taxable year

If the deadline falls on a Saturday, Sunday, or holiday, you have until the next business day to file your return.

How to File and Pay

Annual income tax return

All corporations can file their annual income tax return (Form 500) and pay any tax due using approved software products.

Certain Virginia corporations, with 100% of their business in Virginia and federal taxable income of $40,000 or less for the taxable year, may qualify to electronically file a short version of the return (eForm 500EZ) for free using eForms. If tax is due, you can pay using your bank account information. See eForm 500EZ for complete eligibility requirements and instructions.

Note: Taxpayers who submit eForm 500EZ are not required to submit a copy of their federal return. Please maintain a copy of your federal return with your records and do not mail a copy to Virginia Tax.

Other payment options

Direct Debit (Using your Bank Account Information)

Business online services account. Make estimated tax payments, extension payments, and return payments through your business account. Don't have an account, enroll here. You'll need your Federal Employer ID Number (FEIN), your Virginia Tax account number, and information from your most recently filed Virginia tax return (if you've filed a return) to enroll.

eForms.If you're not ready to create an account, you can pay from your bank account using the appropriate eForm. No login or password is required.

Estimated tax payments (500ES)

Extension payments (500CP)

Balance due on a return (500V)

ACH Credit

You can use ACH Credit for estimated tax payments, extension payments, and return payments. You'll need to contact your corporation's bank to make arrangements to credit the state's bank account with funds from your bank account. Your bank may charge a fee for this service. Find detailed instructions about initiating ACH Credit transactions in our Electronic Payment Guide.

If electronic filing causes an undue hardship, and you are unable to file and pay electronically, you may request a hardship waiver.

Estimated Tax Payments

Every corporation subject to state income tax must make a declaration of estimated income tax for the taxable year if the corporation's state income tax for the same period, minus any allowable credits, is expected to exceed $1,000.

Taxpayers filing on a fiscal year or calendar year basis should follow the declaration and payment schedule in the table shown below. A declaration of estimated income tax is not required for a period of less than 12 months, if:

the period is less than 4 months, or

the filing requirements are first met after the first day of the last month in a short taxable year.

Compute taxable income for the short taxable period on an annual basis by multiplying the income amount by 12 and dividing the result by the number of months in the short period. Refer to the table below to determine when you need to file the declaration and the number and the dollar amount of installments you'll need to pay. You are not required to annualize your income if the short taxable year does not change your accounting period.

The declaration shall be electronically paid on or before...The number of installments to be paid is...The Following % of the estimated tax shall be paid on or before the 15th day of the ...If the requirements are first met....

4th month 6th month 9th month 12th month

How to pay estimated taxes
Corporations are required to make all estimated tax payments electronically using the 500ES eForm or your Business Account.

Online System

eForms

Business Account

Payment by Debit EFT

Checking
account only

Checking or
savings account

Filing Extensions

Virginia grants an automatic filing extension for corporation income tax returns.

C-corporations have an automatic 7-month filing extension. Calendar year filers have an extended due date of Nov. 15.

Nonprofits and all other corporate entities have an automatic 6-month filing extension.

The extension provisions do not apply to payment of any tax due with your return. To avoid penalties, you must pay at least 90% of your final tax liability by the original due date for filing the return. Interest will apply to any balance that is not paid by the original due date.

Make an extension payment

Corporations are required to make extension payments electronically using the 500CP eForm or your Business Online Services Account.

ACH Credit: A corporation may also pay its estimated tax and extension payments by initiating an ACH credit transaction through its bank. Some banks may charge a fee for this service. An Electronic Payment Guide is available with information on how to submit ACH credit payments to Virginia Tax.

Extension Penalty

You are allowed an automatic 7-month extension for filing your corporation income tax returns, (6-months for nonprofits and entities other than C-corporations,) but there is no extension for payment of taxes due.

To avoid an extension penalty, you need to pay at least 90% of the corporation's final tax liability by the original due date for filing the return. If you file your return during the extension period, but the tax due exceeds 10% of your total tax liability, an extension penalty will apply.

The extension penalty is assessed on the balance of tax due at a rate of 2% per month or part of a month, from the original due date until the date the return is filed, to a maximum of 14% (12% for nonprofit corporations and entities other than C-corporations).

Note: In addition, if the tax is not paid in full when the return is filed, a late payment penalty will apply at the rate of 6% per month or part of a month from the date the return is filed through the date the tax is paid, to a maximum of 30%. If the return is filed during the extension period, but the tax due is not paid when the return is filed, both the extension penalty and the late payment penalty may apply. The extension penalty will apply from the due date of the return through the date the return is filed. The late payment penalty (6% of the amount due) will apply from the date the return is filed through the date of payment.

To avoid paying the late payment penalty during the extension period, the tax owed must be paid when the return is filed.
Example: Combined Extension and Late Payment Penalty Assessment
A corporation's income tax return was due on April 15. The return was filed on June 30, but the corporation did not pay the tax due of $2,000 until July 10th. The tax due was more than 10% of the total tax liability for the year, so the corporation is subject to the extension penalty for April, May, and June. Since the corporation didn't pay the tax due when the return was filed, a late payment penalty will also apply for June. The extension penalty and late payment penalty will be assessed as follows:

Tax due reported on return $2,000.00
Extension penalty (3 months @ 2% per month) 120.00
Late payment penalty (1 month @ 6%) 120.00

Note: Interest applies to any balance of tax due that is not paid by the due date, even if the associated return is filed under extension.

Late Filing Penalty

If the return is filed after the extended due date, a 30% late filing penalty will apply on the balance of tax due with the return. The minimum penalty for failure to file timely is $100, and this minimum $100 penalty applies whether or not tax is due for the period covered by the return.

Late Payment Penalty

If you file your return within the extension period and the total amount due is not included with the return, you will be subject to a late payment penalty. Late payment penalty is assessed at a rate of 6% per month from the date of filing through the date of payment, with a maximum penalty of 30%. The late payment penalty will not be applied for any month in which a late filing penalty has been assessed.

The late payment penalty is generally not assessed when an additional balance of tax is assessed as the result of an audit of an income tax return that was filed in good faith.

Interest

Virginia law requires Virginia Tax to assess interest on any balance of unpaid tax, from the due date for payment through the date the tax is paid. Interest charges apply to late payments and payments made with returns filed on extension, as well as to additional balances due with amended returns or assessed as the result of audit adjustments.

Interest is assessed at the federal underpayment rate established under Internal Revenue Code Section 6621, plus 2%. For the current daily interest rate, contact us.

Other Penalties & Fees

Penalties for fraud and failure to file
In addition to the penalties above, Virginia law provides for civil and criminal penalties in cases involving fraud and failure to file. The civil penalty for filing a false or fraudulent return, or for failing or refusing to file a return with intent to evade the tax, is 100% of the correct tax. In addition, criminal penalties of imprisonment for up to one year or a fine of up to $2,500, or both, can apply in cases of fraud and failure to file.

Returned payment fee
If your financial institution does not honor your payment to us, we may charge a fee of $35 (Code of Virginia § 2.2-614.1). This fee is in addition to any other penalty or interest charged.

Responsible Parties

Any corporate, partnership, or limited liability officer may be held personally liable for unpaid taxes assessed against a corporation or partnership.

The term "corporate, partnership, or limited liability officer" includes any officer or employee of a corporation, or a member, manager, or employee of a partnership or limited liability company, whose duty is to collect, account for, and pay the assessed tax, who had knowledge of the failure to pay the tax, and who had the authority to prevent the failure. Code of Virginia § 58.1-1813

General Filing Requirements

Every corporation that is incorporated under Virginia law, or that has registered with the State Corporation Commission for the privilege of conducting business in Virginia, or that receives income from Virginia sources, must file a Virginia corporation income tax return (Form 500).

Nonprofit organizations are only required to file a Virginia corporation income tax return if they incurred unrelated business taxable income at the federal level.

S-corporations: Corporations that have elected S status for federal purposes are automatically treated as S-corporations for Virginia purposes, and must file Form 502. Refer to the Pass-Through Entities page for information about S-corporation filing requirements.

The tax rate is 6% of Virginia taxable income. Corporations that conduct business in more than one state must allocate and apportion their income, using Virginia Schedule A.

Domestic Corporations

A domestic corporation is any corporation that is organized and incorporated (chartered) under the laws of Virginia. A domestic corporation must file a Virginia income tax return each year, even if it has no income to report.

Foreign Corporations

A foreign corporation is any corporation that is incorporated in another state or country. A foreign corporation that has registered with the State Corporation Commission for the privilege of conducting business in Virginia must file a Virginia income tax return each year, even if the company has not conducted business in the Commonwealth or has no income to report. Other foreign corporations must file Virginia returns for taxable years in which they receive income from Virginia sources.

Nexus for foreign corporations is determined under the provisions of Public Law 86-272. For rulings on nexus, visit our Laws, Rules, & Decisions.

Filing by Affiliated Groups

For corporations to be considered affiliated for purposes of filing a consolidated or combined return, 1 of the following relationship tests must be met:

1. 1 corporation must own 80% of the voting stock of another or others; or

2. At least 80% of the voting stock of the corporations included in the Virginia affiliated group must be owned by a common interest.

Each corporation included on a consolidated or combined return must itself be subject to Virginia income tax.

The election to file on a separate, consolidated, or combined basis is made in the first year in which a group of affiliated corporations becomes eligible to file a consolidated or combined return in Virginia. The filing of the Virginia corporation income tax return is considered an election to file under the chosen basis. As a general rule, once the election is made, subsequent returns must be filed on the same basis, unless the Tax Commissioner grants permission to change. The election is also binding for any members that join the affiliated group.

Because the initial filing is an election by the group, the corporations involved do not need permission from the Tax Commissioner to file on their elected basis. Also, since other corporations who later join the group or become subject to Virginia income tax are required to file under the group's established basis, they do not need permission to be included in the original election. Only an affiliated group that wants to change its basis after an election has been made must request permission from the Tax Commissioner. Requests for permission to change from the elected method must be made on or before the due date of the return for the taxable year for which the change will be effective.

A request to change from one filing status to another must be submitted before the due date of the first return to use the requested filing status. Effective July 1, 2017, a $100 administrative fee, Form Filing Status-Fee, and a copy of federal Form 851 must accompany all requests. Mail your request to Virginia Tax, PO Box 27203, Richmond, VA 23218-7203

We will generally grant requests to change a filing status from separate to combined or from combined to separate. Requests to change a filing status to or from consolidated will generally be denied unless there are extraordinary circumstances. However, a group of affiliated corporations that has filed Virginia income tax returns on the same basis for at least the preceding 20 years will be granted permission to change its filing status from consolidated to separate or from separate or combined to consolidated if:

The tax computed under the affiliated group's requested return basis would be equal or greater than the tax for the preceding taxable year; and

The affiliated group agrees to compute its tax liability under both the new filing status and the former filing status and pay the greater of the 2 amounts for the first 2 taxable years in which the new filing status is effective

Net Operating Losses

A net operating loss (NOL) results when a corporation's allowable deductions for federal purposes exceed its income. Virginia law recognizes such NOL deductions to the extent the losses are included in federal taxable income (See Code of Virginia § 58.1-301 for exceptions). Currently, Virginia does not allow a 5-year carry-back of net operating losses as federal corporation law does. Virginia allows corporations a 2-year carry-back. For Virginia purposes, an NOL can be carried forward for 20 years. It may be necessary to keep a separate set of books for federal purposes and Virginia purposes.

Form to File

Form 500NOLD

Include a copy of federal Form 1139

Submit Form 500 NOLD to:

Virginia Department of Taxation
P.O. Box 1500
Richmond, VA 23218

Note: For a capital loss carry-back, file an amended Virginia corporation return using Form 500 and 500ADJ.

For further information, refer to Form 500-NOLD. For information on fixed date conformity provisions for net operating losses incurred after December 31, 2001, view Advancement of Virginia's Fixed Date Conformity to the Internal Revenue Code.

FAQs
Does a corporation have the option to carry-forward its NOL instead of first carrying it back for Virginia purposes?
Yes, Virginia does allow a corporation to carry-forward its NOL instead of carrying it back first. An election statement to forego the carry-back must be included in the Virginia return in the year the loss was incurred clearly stating that the corporation is electing to forego the carry-back. This statement is required any time the Virginia and federal returns do not include all of the same entities and/or use the same filing status. Without this statement, the NOL must be carried back first. It would be carried back to the earliest of the 2 years first.
How do adjustments to federal taxable income (FTI) affect an NOL or an NOL carry-back/carry-forward?
For Virginia purposes, items such as Contribution Subtraction Limitations, Domestic Production Activities Subtraction Limitations, Special Depreciation Non Conformity issues, and other similar adjustments will modify the true FTI figure. The true amount of NOL available for carry-back or carry-forward, as well as the true amount of FTI that the loss carry-back or carry-forward is applied to, is modified by these adjustments. FTI cannot be reduced to a figure lower than zero when applying an NOL carry-back or carry-forward after these adjustments to FTI have been considered.
Additions and subtractions, in the year the loss is incurred, must be carried as modifications with the loss when it is used as a carry-back or carry-forward. How do I identify the additions and subtractions that follow the loss as modifications?
Only additions and subtractions identified in Code of Virginia § 58.1-402 follow the loss as modifications. These modifications follow the loss in the same proportionate share that the loss is used. So if 30% of a 2009 loss is being carried back to 2007, then 30% of the net additions and subtractions (modifications) from 2009 also get carried back to 2007. It is possible that, after the NOL carry-back or carry-forward is applied bringing FTI down to zero, a tax may still be due because of these modifications.

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Corporations are required to file and pay all annual income tax returns, estimated payments, and extension payments electronically. See How to File and Pay below for payment options.

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ULTIMATE GUIDE TO VIRGINIA TAX AUDITS & CRIMINAL TAX LAW

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ULTIMATE GUIDE TO VIRGINIA TAX AUDITS & CRIMINAL TAX LAW

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If you are facing an IRS audit or criminal tax law investigation in Virginia, hiring an experienced tax lawyer is the best way to protect yourself against interest, fines and other penalties. To request a confidential consultation with Kevin E. Thorn, Managing Partner at Thorn Law Group, call 703-752-3752 now.

The IRS aggressively pursues individuals and businesses suspected of underreporting and underpaying their federal tax obligations. Through audits and criminal tax law investigations, the IRS pursues back taxes, interest, and substantial penalties, and many individuals and businesses targeted in audits and investigations will face substantial liability. If you find yourself being targeted by the IRS, you need to take action promptly, and your first step should be to consult with a Virginia tax audit lawyer right away.

Why do you need to consult with a lawyer? The answer is simple: IRS agents and Special Agents with the IRS Criminal Investigation Division are very good at what they do. They are also extremely persistent, and they will continue to pursue you until either: (i) they are satisfied that you have meet your obligations; or, (ii) you have been ordered to pay what you owe (and more). Once the IRS is in pursuit, there is no chance that the audit or investigation will "simply go away." You need to defend yourself by all means available. In order to do so, you need an experienced federal tax attorney on your side.

Common Allegations in Federal Tax Law Audits and Criminal Tax Law Investigations

Why are you being audited or investigated by the IRS? If you are like most people, learning that the IRS is reexamining your tax returns came as a complete surprise. You have always trusted your accountant to prepare your returns for you, and you have always assumed that he or she was doing what was necessary to prevent this exact scenario.

But, now you are being forced to defend your returns. Are they accurate? Did you (or your accountant) omit any necessary forms? Could you be in debt to the IRS? If so, how much do you owe?

When facing an IRS auditor criminal tax law investigation, you need to determine exactly why the IRS is looking into your tax history, and you need to do so quickly. Until you know what triggered the audit or investigation, you simply have no way of defending yourself effectively. You cannot afford to assume that you know what is at issue - even if you have made a mistake such as failing to collect employment taxes or to report your offshore bank accounts - as trying to defend a violation that isn't at issue could result in the audit or investigation being expanded.

Each IRS audit is different, and the IRS Criminal Investigation Division has been vested with the authority to investigate a multitude of crimes under the Internal Revenue Code, the Bank Secrecy Act, the Foreign Account Tax Compliance Act(FATCA) and various other federal criminal laws. Depending on your filing history, your sources of income, your domestic and foreign holdings and other factors, potential issues underlying your federal tax audit or investigation could include:

Tax evasion and general tax fraud

Tax return preparer fraud

Failure to report offshore bank accounts (FATCA violations)

Abuse of foreign and domestic trusts

Employment tax fraud

Excise tax fraud

Financial institution or insurance company fraud

Public corruption

Mail and wire fraud

Money laundering

Conspiracy

Financial crimes related to narcotics, racketeering and other illegal income sources

Most people earn their income through legitimate means and do their best to pay what they owe. However, this does not prevent the IRS from making serious allegations against them. If you are facing an IRS audit or criminal tax law investigation, you need to take your situation extremely seriously, and you need to speak with a Virginia tax audit lawyer promptly.

10 Questions You Need to Answer if You Have Been Contacted by the IRS in Virginia

Once you have received an audit letter from the IRS or been contacted by Special Agents from the IRS Criminal Investigation Division, you need to immediately focus your efforts on your defense. You need to make informed and strategic decisions, and you need to avoid mistakes that could lead to unnecessary exposure to interest, fines and even federal imprisonment. With this in mind, here are 10 questions that you need to answer as soon as possible:

1. Why did the IRS choose to initiate an audit or open an investigation?

Once again, when facing an audit or investigation, determining whyyou are being audited or investigated should be one of your top priorities. Answering this question will allow you to build an appropriate defense, assess your potential risk and make strategic decisions moving forward. While underreporting or underpaying your income taxes is one possibility, the IRS routinely audits and investigates taxpayers for numerous other statutory violations as well.

2. Has anyone else been involved or implicated in the audit or investigation?

Did your accountant receive an audit letter or subpoena? Did your foreign bank send you a FATCA letter? Have any of your business partners, suppliers or clients been contacted by the IRS? Determining whether anyone else has been involved or implicated in the audit or investigation will provide additional insight into the scope and nature of the IRS's inquiry.

3. Did you fail to submit any required forms to the IRS or the Financial Crimes Enforcement Network (FinCEN)?

Failing to file necessary forms with the IRS or FinCEN is a common trigger for tax audits and investigations. If you are delinquent on submitting any tax or financial reporting forms, you need to know about it, and you need to address the issue proactively before the IRS imposes penalties or seeks an indictment. Contact Virginia tax audit lawyer Kevin Thorn as soon as possible for assistance.

4. Do you owe back taxes (plus interest and penalties) to the IRS?

Just as you need to independently discern whether you have omitted any necessary filings, you also need to determine whether you owe back taxes (plus interest and penalties) to the IRS. If you do, interest and penalties will continue to accrue; however, you also need to be careful to avoid raising red flags by submitting voluntary payment to the IRS.

5. Can you afford to pay what you owe the IRS?

If you determine that you owe back taxes, interest and penalties, can you afford to pay what you owe? While this is an imminently practical issue, it is also a question that will help inform your strategy for dealing with the IRS. If you demonstrably cannot afford to pay (and you do not have any defenses to liability), then your best option maybe to pursue an offer in compromise. A deferred prosecution agreement is another potential option, although pursuing this route requires extremely careful consideration and a thorough assessment of all possible alternatives.

6. Are you at risk for non-tax-specific prosecution?

As we mentioned above, the IRS Criminal Investigation Division does not just enforce the Internal Revenue Code. It investigates violations of numerous other federal criminal statutes as well, and it often works closely with the Federal Bureau of Investigation (FBI), the U.S. Department of Justice (DOJ), and other agencies to pursue broad-scale criminal indictments. With offenses such as mail fraud and wire fraud carrying the potential for hundreds of thousands of dollars in fines and decades behind bars, you need to know the full scope of your potential exposure in order to make informed decisions about your defense.

7. How far back is the IRS looking?

As a general rule, the IRS can examine up to three years of returns during an audit. However, this statute of limitations can be extended under various circumstances, and it can be longer in criminal investigations. As a result, in addition to knowing they types of issues that are under scrutiny, you also need to know the duration of history at issue.

8. If you are facing an audit, whattypeof audit are you facing?

The IRS conducts three types of audits: correspondence audits, office audits and field audits. Each type of audit has a specific purpose, and the type of audit you are facing can potentially tell you a lot about the IRS's inquiry.

Correspondence Audits- These audits are conducted by mail and typically involve issues that can be corrected with minimal effort. However, they can still lead to additional tax liability, interest and penalties.

Office Audits- These audits require you to meet in-person with an IRS agent in Virginia. They tend to involve issues that are more-complicated than those raised in correspondence audits, and it is important to speak with a tax audit lawyer before you meet with the IRS.

Field Audits- During a field audit, IRS agents will come to your home or business. These are generally the most-dangerous type of audit, and in order to protect yourself you should have your attorney present at all times.

9. If you are being audited, is there a risk that the inquiry could turn criminal?

While facing an audit is stressful, it can also lull some people into a false sense of complacency. They assume the fact that the IRS initiated an audit means they are not risk for criminal prosecution. Although this is often true, it is not universally the case. If an audit reveals evidence of intentional underreporting, intentional underpayment or other criminal conduct, then the IRS Criminal Investigation Division may take over and pursue an indictment on one or more criminal charges.

10. How long do you have before the IRS reaches a conclusion or pursues an indictment?

How long have you had the IRS's attention? Particularly if you are facing a criminal investigation, the answer may be, "longer than you think." Once you find out that you are being audited or investigated, you need to try to determine how long the audit or investigation has been ongoing. This will help tell you just how close the IRS is to imposing civil penalties or pursuing a criminal indictment.

Potential Defenses to Tax Fraud and Other Tax-Related Allegations

With these questions answered, our Virginia criminal tax lawyer can begin to put together a defense strategy focused on resolving your IRS audit or criminal tax law investigation as favorably as possible. Just as there are numerous potential allegations in these types of matter, there are also numerous potential defenses. While every situation is unique, some of the potential defenses to allegations of tax fraud and other tax crimes include:

Full Reporting and Payment- If you can prove that you fully met your reporting and payment obligations, then you should not be subject to any interest or penalties. When possible, affirmatively demonstrating your compliance (without unnecessarily disclosing information to the IRS) can be the best defense during an audit or investigation.

No Reporting Obligation- If you did not actually have an obligation to report your income or holdings to the IRS, then "failing" to report them is not an offense. Oftentimes, audits and investigations focus on reporting requirements that do not apply to the subject taxpayer.

Lack of Intent- If you made a mistake but did not do so intentionally, then demonstrating your lack of intentmaybe your best option. However, this approach carries risk, and you should not admit toanythingunless advised to do so by your attorney.

Statutory Protections- In certain cases, statutory protections can be used to prevent prosecution. This includes protections for innocent spouses and other taxpayers whose returns are inaccurate due to factors beyond their control.

Constitutional Protections- From unreasonable searches and seizures to violations of the right to a speedy trial, violations of taxpayers' constitutional protections can provide defenses in many cases as well.

Speak With a Virginia Tax Audit and Investigation Lawyer in Confidence

If you need to speak with a lawyer in Virginia about an IRS audit or criminal tax law investigation, we encourage you to contact us right away. To schedule a confidential initial consultation with Managing Partner Kevin Thorn at Thorn Law Group as soon as possible, call 703-752-3752 or request an appointment online now.

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The IRS aggressively pursues individuals and businesses suspected of underreporting and underpaying their federal tax obligations. Through audits and criminal tax law investigations, the IRS pursues back taxes, interest, and substantial penalties, and many individuals and businesses targeted in audits and investigations will face substantial liability.

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A Guide to the Federal Tax Appeals Process

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A Guide to the Federal Tax Appeals Process

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Penzu is a free online diary and personal journal focused on privacy. Easily keep a secret diary or a private journal of notes and ideas securely on the web.

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Many cryptocurrency enthusiasts see digital currencies as a way to hide their assets and avoid taxes. Not surprisingly, the Internal Revenue Service has caught on and has been working hard on ways to enforce tax compliance. In 2014, the IRS released Notice 2014-21, 2014-16 I.R.B. 938, which explains that digital currencies are treated as property for Federal tax purposes, and the same taxation rules apply. As cryptocurrencies have become more widely used, they have become more stringent on enforcement.

What Is Cryptocurrency?

Cryptocurrencies are digital currencies that are built upon decentralized blockchain technology and can be used to purchase goods and services like any other currency. A blockchain is a method of recorded transaction details in digital blocks of information that cannot be altered. Some of the most popular cryptocurrencies include Bitcoin, Etherium, and Lightcoin.

While cryptocurrencies are not recognized as legal tender in the United States as they are in other countries, they are becoming more popular for financial transactions and contracts. In addition, the value of cryptocurrencies is extremely volatile in comparison to fiat currencies. This means that it is possible to make a profit by buying, selling, and trading these currencies.

What Cryptocurrency Gains Need to Be Reported?

You only need to report your cryptocurrency to the IRS when a profit is made. While simply buying crypto is not a taxable event, any profit made will need to be reported on your tax return if you resell it for more than what you paid. This applies to any type of transaction that results in a gain, including receiving airdropped tokens, trading, staking, mining, or lending. Gifts and inheritance received in cryptocurrency are treated as regular assets and will need to be reported as well. In addition, if you have cryptocurrency held in a offshore accounts that also holds other assets, it is subject to the Foreign Bank and Financial Accounts (FBAR) reporting rules.

How to Report Cryptocurrency on Your Tax Return

The new 1040 tax form has a question on whether the taxpayer was involved in any virtual currency transactions. Crypto gains and losses are calculated using Form 8949, and then reported on Schedule D of your 1040. If you're an avid cryptocurrency trader, be aware that exchanges are required to file a 1099-K for users that have traded more than 200 transactions or $20,000 worth of assets in the past year.

The tax rate you will have to pay on your cryptocurrency gains will depend on several factors, including your income and filing status. In addition, they will be taxed as short-term or long-term gains depending on whether you held onto the asset for at least 365 days. Long-term gains will be taxed at a lower rate. In general, for tax purposes, crypto gains are treated the same way as capital gains on stocks and are taxed at the same rate.

If you receive payment in cryptocurrency for goods and services, the value of the currency received at the time of payment will be counted as income. As cryptocurrency prices can fluctuate widely, it is your responsibility to track your gains and losses. In 2023, some exchanges will start providing a Form 1099-B with your yearly gains and losses, but of course, this will only include whatever assets are left on the exchange and does not track anything that is moved to your personal wallet(s). There are a number of crypto-related tax software programs available that can help with tracking and are compatible with common tax filing software.

Potential Consequences For Not Reporting

Even if your exchange has not filed a 1099 to the IRS for your transactions, that does not mean that you are off the hook for paying taxes on them. While previously blockchain technology was lauded for its anonymity-only the wallet addresses of the parties involved can be seen in a given transaction-many exchanges have now implemented KYC (Know Your Customer) verification which links your legal identity to your account.

The IRS's Office of the Chief's Counsel has become more diligent in recent years when it comes to the reporting of cryptocurrency transactions. Those caught failing to report can find themselves facing a tax audit or investigation, which can have consequences ranging from fines to criminal charges. As filing taxes can be complex for those who regularly use cryptocurrency, you may need to consult with a tax attorney or CPA to ensure that you avoid penalties.

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Do You Have to Pay Taxes on Cryptocurrency Gains?

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Many cryptocurrency enthusiasts see digital currencies as a way to hide their assets and avoid taxes. Not surprisingly, the Internal Revenue Service has caught on and has been working hard on ways to enforce tax compliance. In 2014, the IRS released Notice 2014-21, 2014-16 I.R.B.

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It seems that NFTs have become all the rage in the last couple of years, but the practice of investors using art to "hide" their assets to minimize tax liability is nothing new. However, don't think that being an NFT creator or collector means you can avoid paying taxes on any profits you make. While the Internal Revenue Service has yet to define rules that are specific to NFTs, in 2014 they released Notice 2014-21, 2014-16 I.R.B. 938, which defines digital assets as property for federal tax purposes, and subject to the same rules as other types of assets.

What is an NFT?

NFT stands for "non-fungible token." It is a digital (usually artistic) asset that is minted on a decentralized blockchain network, such as Ethereum or Tezos. When this happens, the digital creation is "stamped" with a token that cannot be duplicated, making the NFT unique. An easy analogy is to think of it as similar to owning the original signed painting by an artist rather than a print of it. Each NFT is unique; they are not interchangeable. While you can easily copy or share the image, only the NFT is going to have the creator's token attached.

NFTs have become popular among artists and collectors, and many have sold or resold for thousands or even millions of dollars. Some of the most famous and profitable examples of NFT projects include CrytoKitties, CrytoPunks and the Bored Ape Yacht Club. Even celebrities are getting into the NFT craze. Sports figures and musicians such as Shikira and Snoop Dogg have gotten involved in creating and selling these digital collectibles.

When Do You Need to Report NFTs on Your Tax Return?

What events are considered taxable will depend on whether you are an NFT creator or collector. If you are a professional creator, minting an NFT is a taxable event. This means that the "gas" fee you paid to mint the NFT can be deducted as a business expense, and any profit you make from selling it is counted as ordinary income. In addition, any resale royalties would be taxable as well.

If you are a trader or collector, the IRS classifies NFTs as collectibles, and are bound under the same rules as valuable tangible items such as art, precious gems, and antiques. Any gains made from selling an NFT for more than you purchased it for will be taxed as short-term or long-term gains, depending on how long you held onto the asset before selling it. However, you can also claim losses from NFT transactions as well.

How to Report Gains From NFTs

While NFTs are taxed as ordinary assets for creators, they are treated as capital assets for collectors. Capital gains and losses, including those related to NFTs, are reconciled using the IRS Form 8949, and reported on Form 1040 using Schedule D. If you sold an NFT, be sure to enter the code "C" (for collectible) in column (f). Assets that you have had for a year or more or taxed at the long-term capital gains rate of 28%, regardless of your income level. Any held for less than a year are taxed as short-term gains, which is equal to your ordinary income tax rate.

Potential Consequences For Not Reporting

Don't think that you can hide your NFT profits from the IRS. As their popularity has grown, the IRS has been focusing on the enforcement of tax payments for digital currency gains such as those from NFTs, and has been targeting those who fail to comply with audits and cryptocurrency tax fraud investigations. While blockchain transactions were once anonymous, it has now become easier to identify the parties involved. Be sure to avoid the risk of fines or criminal charges by ensuring your NFT gains are properly reported.

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Do You Have to Claim NFTs on Your Tax Return?

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It seems that NFTs have become all the rage in the last couple of years, but the practice of investors using art to "hide" their assets to minimize tax liability is nothing new. However, don't think that being an NFT creator or collector means you can avoid paying taxes on any profits you make.

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What Do Cryptocurrency Investors Need to Know About U.S. Tax Law?

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What Do Cryptocurrency Investors Need to Know About U.S. Tax Law?

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If you own Bitcoin or other cryptocurrencies - or if you have owned any crypto asset in the past - you owe obligations to the Internal Revenue Service (IRS) under the U.S. Tax Code. Here is an introduction to what you need to know:

Virtual Currency is Not Treated as "Currency" for U.S. Income Tax Purposes

The IRS has taken the position that "[u]nder currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes." However, this does not mean that investing in cryptocurrency is without federal income tax implications. On the contrary, cryptocurrency transactions can potentially trigger ordinary or capital gains tax, and cryptocurrency investors owe annual reporting obligations to the IRS.

Income Tax on Cryptocurrency is Determined on a Transaction-Specific Basis

Calculating gain or loss on a transaction involving cryptocurrency requires knowledge of the fair market value of the cryptocurrency at the time of receipt and at the time of transfer. The IRS states: "A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. . . . The basis of virtual currency . . . is the fair market value of the virtual currency in U.S. dollars as of the date of receipt."

Buying Goods or Services with Cryptocurrency is a Taxable Event

Any time cryptocurrency is exchanged or transferred, this is considered a taxable event under the U.S. Tax Code. This means that cryptocurrency holders must carefully record all transactions and report the gain or loss from each individual transaction to the IRS.

Mining Cryptocurrency is Also a Taxable Event

The IRS has also taken the position that mining cryptocurrency is a taxable event. As a result, if you successfully mine Bitcoin or other cryptocurrency, during a tax year, you owe an obligation to the IRS. "[W]hen a taxpayer successfully 'mines' virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income."

The IRS is Enforcing U.S. Taxpayers' Obligations with Regard to Cryptocurrency

In 2019 and 2020, the IRS sent letters to thousands of cryptocurrency investors warning that they may owe federal income tax as a result of their virtual currency holdings and transactions. Combatting cryptocurrency tax fraud is currently one of the IRS's top priorities, and multiple offices and divisions are devoting resources to uncovering nonreporting and nonpayment of cryptocurrency-related income taxes.

Failure to Report or Pay Cryptocurrency-Related Tax Can Lead to Substantial Penalties

Cryptocurrency investors who are targeted in IRS audits and investigations can face substantial penalties. In addition to liability for unpaid taxes, this includes substantial interest and penalties, as well as the potential for federal criminal prosecution. As a result, cryptocurrency investors who have concerns about whether they have satisfied their federal income tax obligations should consult with an attorney promptly.
See Also: Cryptocurrency and Taxes: What is a 1099 Tax Form?

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What Do Cryptocurrency Investors Need to Know About U.S. Tax Law?

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If you own Bitcoin or other cryptocurrencies - or if [...]

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Report of Foreign Bank and Financial Accounts (FBAR)

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Report of Foreign Bank and Financial Accounts (FBAR)

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Per the Bank Secrecy Act, every year you must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts. You report the accounts by filing a Report of Foreign Bank and Financial Accounts (FBAR) on Financial Crimes Enforcement Network (FinCEN) Form 114.

Who must file

A U.S. person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report:

1. a financial interest in or signature or other authority over at least one financial account located outside the United States if

2. the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

Generally, an account at a financial institution located outside the United States is a foreign financial account. Whether the account produced taxable income has no effect on whether the account is a foreign financial account for FBAR purposes.

But, you don't need to report foreign financial accounts that are:

Correspondent/Nostro accounts,

Owned by a governmental entity,

Owned by an international financial institution,

Maintained on a U.S. military banking facility,

Held in an individual retirement account (IRA) of which you're an owner or beneficiary,

Held in a retirement plan of which you're a participant or beneficiary, or

Part of a trust of which you're a beneficiary, if a U.S. person (trust, trustee of the trust or agent of the trust) files an FBAR reporting these accounts.

You don't need to file an FBAR for the calendar year if:

All your foreign financial accounts are reported on a consolidated FBAR, or

You jointly own all your foreign financial accounts with your spouse and:
You completed and signed FinCEN Form 114a authorizing your spouse to file on your behalf, and your spouse reports the jointly owned accounts on a timely-filed signed FBAR.

Note: Income tax filing status, such as married-filing-jointly and married-filing-separately, has no effect on your qualification for this exception.

The FBAR resources below provide more detailed information.

When to file

The FBAR is an annual report, due April 15 following the calendar year reported. You're allowed an automatic extension to October 15 if you fail to meet the FBAR annual due date of April 15. You don't need to request an extension to file the FBAR. See FinCEN's website PDF for further information.

If you're affected by a natural disaster, the government may further extend your FBAR due date. It's important that you review relevant FBAR relief notices for complete information.

The government continues to extend the FBAR due date for certain employees or officers with signature or other authority over, but no financial interest in certain foreign financial accounts. Review important details about this extension in the most recent notice for certain financial professionals.

How to file

You must file the FBAR electronically through FinCEN's BSA E-Filing System. You don't file the FBAR with your federal tax return.

If you want to paper-file your FBAR, you must call FinCEN's Resource Center to request an exemption from e-filing. See Contact Us below to reach this resource center. If FinCEN approves your request, FinCEN will send you the paper FBAR form to complete and mail to the IRS at the address in the form's instructions. IRS will not accept paper filings on TD F 90-22.1 (obsolete) or a printed FinCEN Form 114 (for e-filing only).

If you want someone to file your FBAR on your behalf, use FinCEN Report 114a, Record of Authorization to Electronically File FBARs PDF, to authorize that person to do so. You don't submit FinCEN Report 114a when filing the FBAR; just keep it for your records and make it available to FinCEN or IRS upon request.

Keeping records

For each account you must report on an FBAR, you must keep records with this information:

Name on the account,

Account number,

Name and address of the foreign bank,

Type of account, and

Maximum value during the year.

The law doesn't specify the type of document to keep with this information. Documents may include bank statements or a copy of a filed FBAR if they have the required information.

Generally, you must keep these records for five years from the due date of the FBAR.

Exception: An officer or employee who files an FBAR to report signature authority over an employer's foreign financial account doesn't need to personally keep records on these accounts. The employer must keep the records for these accounts.

Penalties

You may be subject to civil monetary penalties and/or criminal penalties for FBAR reporting and/or recordkeeping violations. Assertion of penalties depends on facts and circumstances. Civil FBAR penalty maximums in Title 31 of the United States Code are adjusted annually for inflation. Publication 5569, Report of Foreign Bank & Financial Accounts (FBAR) Reference Guide PDF contains information about criminal penalties.

Filing delinquent FBARs

Filing an FBAR late or not at all is a violation and may subject you to penalties. If the IRS hasn't contacted you about a late FBAR and you're not under civil or criminal investigation by the IRS, you should file late FBARs as soon as possible to keep potential penalties to a minimum.

Follow these instructions to explain your reason for filing late. If you're using a compliance option, such as the Streamlined filing compliance procedures, follow the instructions for the specific compliance option.

Representation for FBAR issues

You can authorize someone to represent you for FBAR matters if you wish. To do so, you may use Form 2848, Power of Attorney and Declaration of Representative, or a general power of attorney form executed under applicable state law. If using Form 2848, complete Line 3, Acts Authorized, as follows:

Under Description of Matter - Matters relating to Report of Foreign Bank and Financial Accounts or "FBAR Examination"

Under Tax Form Number - FinCEN Form 114

Under Year(s) or Period(s) - applicable calendar year(s)

FBAR resources

Note: Civil penalty maximums in these materials may not be current, as the amounts are adjusted annually for inflation.

Contact us

Can't find the answer to your question in online information? Contact us.

IRS FBAR Hotline

866-270-0733; or if calling from outside the United States, 313-234-6146

Monday - Friday, 8 a.m. to 4:30 p.m. EST

General questions:

FBAR filing requirements

Filing methods

FinCEN's BSA E-Filing Help Desk

See FinCEN's website for contact information

Monday - Friday, 8 a.m. to 6 p.m. EST

Technical questions about BSA's E-Filing System

FinCEN's
Resource Center

See FinCEN's website for contact information

Leave a message for a return call

E-filing exemptions to allow FBAR paper-filing

Questions about BSA regulations

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Report of Foreign Bank and Financial Accounts (FBAR)

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Per the Bank Secrecy Act, every year you must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts. You report the accounts by filing a Report of Foreign Bank and Financial Accounts (FBAR) on Financial Crimes Enforcement Network (FinCEN) Form 114.

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SUPREME COURT RULES IN FAVOR OF TAXPAYERS IN FBAR CASE: THE SIGNIFICANCE AND THE NEED FOR AN EXPERIENCED VIRGINIA TAX ATTORNEY

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SUPREME COURT RULES IN FAVOR OF TAXPAYERS IN FBAR CASE: THE SIGNIFICANCE AND THE NEED FOR AN EXPERIENCED VIRGINIA TAX ATTORNEY

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News and Events

Posted in on September 1, 2023

In a landmark decision that has far-reaching implications for taxpayers involved in Foreign Bank Account Reporting (FBAR) situations, the United States Supreme Court recently ruled in favor of taxpayers, emphasizing the importance of proper legal representation in navigating complex tax matters. These rulings underscore the necessity of retaining an experienced Virginia former IRS tax attorney to ensure the best possible outcome for taxpayers facing FBAR-related challenges.

The Supreme Court Ruling and Its Significance

The Supreme Court's ruling in favor of taxpayers in FBAR cases serves as a crucial turning point in the ongoing legal battles surrounding foreign bank account reporting requirements. Historically, the Internal Revenue Service (IRS) has maintained strict enforcement of FBAR regulations, imposing substantial penalties on taxpayers who fail to comply with reporting obligations related to offshore accounts and assets.

The recent Supreme Court decision reaffirms the principle of fairness in tax enforcement, asserting that non-willful violations of FBAR requirements should not lead to excessive penalties. This ruling helps strike a balance between holding taxpayers accountable for their reporting obligations and preventing the imposition of disproportionate penalties.

Why Choosing an Experienced Former IRS Tax Attorney in Virginia Matters

Navigating the intricacies of FBAR law and reporting requirements demands a deep understanding of tax law, regulations, and procedures. Here's why hiring an experienced Virginia IRS tax attorney is crucial for those facing FBAR-related challenges. Given the government's propensity in the past to overstepping the law, only an experienced IRS tax litigation attorney can provide the proper reporting guidance and prevent further IRS tax abuse.

To be clear, FBAR situations involve complex tax laws and regulations that require a nuanced understanding. An experienced tax attorney possesses the knowledge and expertise necessary to interpret the ever-evolving tax code and apply it effectively to your case. A seasoned tax attorney will develop a comprehensive strategy tailored to your specific circumstances. They will analyze the facts, review financial records, and develop a plan to mitigate penalties or potential legal consequences.

An experienced former Virginia IRS tax attorney understands the importance of legal precedent and case law. They can draw upon relevant past rulings and legal interpretations to build a persuasive argument in your favor if necessary.

The Supreme Court's ruling is in support of taxpayers in foreign bank account reporting situations and signals a shift in the legal landscape, emphasizing the need for fairness and proportionality in tax enforcement. For individuals facing FBAR-related challenges, this decision reinforces the need for a former IRS tax attorney and the specialized knowledge, strategic guidance, procedural proficiency, negotiation skills, and ability to draw upon legal precedent to provide the best possible outcome for taxpayers.

Do not wait any longer; contact Managing Partner Kevin E. Thorn at 703-727-5690 or visit his website at Virginia-Tax-Lawyer.com to schedule an appointment to discuss your case concerning the reporting of offshore bank accounts. With Kevin E. Thorn's expertise, you can navigate the complexities of FBAR requirements with confidence and work towards a favorable resolution.

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The Supreme Court's ruling is in support of taxpayers in foreign bank account reporting situations and signals a shift in the legal landscape, emphasizing the need for fairness and proportionality in tax enforcement.

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Is there an IRS Tax Audit on your business? 

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Is there an IRS Tax Audit on your business? 

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ATNN Breaking News: Is there an IRS Tax Audit on your business? Call Us Today! 202-349-4033

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If you want to put your money into an offshore account, go ahead. But be aware that it won’t be exempt from taxes.

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Will the IRS Find Out if You Don’t Disclose Your Offshore Accounts on an FBAR?

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Will the IRS Find Out if You Don’t Disclose Your Offshore Accounts on an FBAR?

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A Guide to the Federal Tax Appeals Process

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Once you file your appeal, the Office of Appeals will review your filing and contact you regarding further proceedings. However, this first contact might not come right away. The Office of Appeals states that you should wait 120 days before following up on your request. In the meantime, however, any interest and penalties will continue to accrue. As a result, while your appeal request is pending, you need to make an informed decision about how to address any potential outstanding and ongoing liability.

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A Guide to the Federal Tax Appeals Process

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If you have just been through an IRS audit and you are now facing substantial liability for tax, interest and penalties, it is time to weigh your options for filing an appeal. Filing a successful appeal can greatly reduce the amount you owe to the IRS... if not wipe it out entirely.

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The following is a list of some of the most common errors in filing business-related taxes. Please take care to avoid these mistakes.

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10 Common Tax Mistakes, Their Consequences, and How to Correct Them

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Haven’t filed you tax return yet? Here are two big reasons why you should | CNN Business

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There may be upheaval at the IRS. But that doesn’t mean you should skip filing your return. Here’s why

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Richmond issues 8,300 incorrect tax rebate checks due to administrative error

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The City of Richmond issued over 8,000 tax rebate checks made out to an incorrect recipient in March due to an “administrative error,” the city shared on Monday.

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Audit Rates, Outcomes and More: Key Insights for Taxpayers from the IRS Data Book

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Paycheck Protection Program | PPP Loan | TaxAct Support

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