Did a federal extension preserve Virginia refund claims when the taxpayers filed their 2005 return after Virginia's six-month extended due date?

Subject

§ 58.1-344 provides a six-month filing extension for filing income tax returns

Plain-English summary

The taxpayers filed too late to receive their 2005 refunds. Virginia allowed a six-month filing extension for the 2005 tax year, but the taxpayer had to file the original return within that extended period. Missing the extended due date invalidated the election and restored the original due date for measuring the refund deadline.

The original 2005 return was filed October 16, 2009, and the amended return followed on October 29. Both were after the ruling's May 2009 expiration of the three-year period measured from the May 1, 2006 original due date.

The federal extension did not help. The ruling explains that, beginning with tax year 2005, Virginia no longer required a federal extension to obtain its automatic extension, so the federal filing did not establish a valid Virginia extension when the Virginia return itself was late.

What this means for you

• A Virginia filing extension did not remain valid after the extended filing date was missed.
• A late original return could not use the extended date to calculate the refund limitation period.
• The federal extension was irrelevant to the post-2004 Virginia extension system described in the ruling.
• Both original and amended refund claims were untimely here.

Common questions

Was a paper Virginia extension required for 2005?

No. The ruling says the 2005 law allowed an automatic six-month election, subject to filing within the extended period and timely paying the properly estimated balance due.

Why did the federal extension not control?

Virginia's 2005 amendment eliminated the federal-extension requirement, and the taxpayers still had to meet Virginia's own filing conditions.

Citations and references

• Va. Code §§ 58.1-341(A), 58.1-344, 58.1-499, and 58.1-1823.
• Chapter 100, 2005 Acts of Assembly.
• P.D. 09-85, discussed in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-238

Original ruling text

September 30, 2010

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you request a refund of individual income tax on behalf of your clients, * (the "Taxpayers"), for the taxable year ended December 31, 2005.

FACTS

On October 16, 2009, the Taxpayers, filed their Virginia individual income tax return for the 2005 taxable year. They then filed an amended return on October 29, 2009. The Department processed both returns, but denied the refunds because the returns were not filed within the statute of limitations. The Taxpayers filed an appeal, contending that the returns were filed within three years of the extended due date. The Taxpayers argue that they filed a federal extension; therefore, the due date for the Virginia return was automatically extended six months from the original due date and no paper extension was required because the full amount of the tax had been paid by the original due date.

DETERMINATION

Virginia Code § 58.1-341 A requires that taxpayers file individual income tax returns by May 1 of the year following the tax, year for which the return is filed. Virginia Code § 58.1-344 provides a six-month filing extension of the due date for filing the income tax return.

Effective for taxable years beginning on and after January 1, 2005, taxpayers are allowed to elect to take a six month extension to file their returns. In order to elect an extension, a taxpayer must (i) file the return within the extended period, and (ii) on or before the original due date for the filing of the return, pay the full amount properly estimated as the balance of the tax due for the taxable year. See Va. Code § 58.1-344. If the taxpayer intends to take the extension but then does not file a return or pay the full amount of the tax due by the extended due date, the taxpayer is treated as if no extension had been granted.

Taxpayers who do not file a return have three years from the original due date to file a return requesting a refund. See Va. Code § 58.1-499. When a return has been filed on or before an original or extended due date, whether such extension was granted by the Department or automatically, an amended return must be filed within three years of the original or extended due date, as applicable. See Va. Code § 58.1-1823.

When an original return has been filed after the extended due date, the taxpayer has from three years after the original due date to file an amended return. This is because Va. Code § 58.1-344 A permits an individual to elect "an extension of time within which to file the income tax return . . . ." If a taxpayer has not filed an original return by the extended due date, a valid election has not been made. If a return is not filed within an extension period, the extension is negated and the last day allowed for the timely filing of the return reverts to the original due date under Va. Code § 58.1-499 D.

Prior to 2005, the Department regularly granted applications for an extension to file an income tax return when a taxpayer filled an extension for federal income tax purposes. However, the 2005 amendments made by General Assembly eliminated the need for a taxpayer to file a federal extension in order to be granted an automatic extension for Virginia income tax purposes. See Chapter 100, 2005 Acts of Assembly . As such, the fact that the Taxpayers filed an extension for federal income tax purposes has no bearing on whether an extension was granted to file a 2005 Virginia income return.

The Taxpayers have cited Public Document (P.D.) 09-85 (5/28/2009). This determination states that the taxpayer's return was not filed within three years of the extended due date for the 2003 taxable year. In fact, the 2003 return was filed in April 2008, more that three years after the extended due date of November 1, 2007. The determination is silent as to whether the taxpayers had filed a valid extension, under the rules as they existed prior to the 2005 taxable year. However, P.D. 09-85 goes on to clearly state that when a return is not filed within the extended period of time, the extension becomes void and such return is processed as if no extension was granted.

In this case, the Taxpayers' original individual income tax return for the 2005 taxable year was filed on October 16, 2009. This return was filed beyond the extended due date for the 2005 taxable year. As such, the Taxpayers had three years from the original due date (May 1, 2006) in which to file a timely request for refund. The statute of limitations for filing a return claiming a refund for the 2005 taxable year expired May 2009.

The Taxpayers also filed an amended 2005 taxable year return on October 29, 2009. As with the original return, the amended return was filed beyond the statute of limitations. Accordingly, I must deny the requests for refund for the 2005 taxable year.

The Code of Virginia sections and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Acting Tax Commissioner

AR/1-4097960958.E