Could taxpayers apply a late-filed 2008 overpayment to 2009 after Virginia's refund limitations periods expired?

Plain-English summary

Virginia denied the taxpayers' request to use a claimed 2008 overpayment against their 2009 liability because the amended return was filed too late. The taxpayers submitted both the 2009 return and the 2008 amended return in October 2012.

Virginia's general refund rule required the claim within three years of the timely filing deadline. The Department reviewed the specific exceptions for federal changes, prior amended-return payments, assessment payments, other-state changes, and protective claims, but found none that authorized this request.

Asking to credit the overpayment forward rather than receive cash did not avoid the refund statute. The Tax Commissioner said the Department was not empowered to waive the limitations period.

The determination separately noted that the taxpayers may have had a recent net operating loss. If so, they could file amended Virginia returns for a federal-conforming carryback, but only within the applicable Va. Code § 58.1-1823 deadlines.

What this means for you

• An overpayment credit is subject to the same deadlines as a refund claim.
• Virginia's limitations exceptions are specific and strictly applied.
• The Tax Commissioner cannot waive an expired refund period based on hardship alone.
• A separate NOL carryback may have its own viable deadline and should be analyzed independently.

Common questions

Q: Why was the 2008 credit denied?
A: The October 2012 amended return was filed after all applicable limitations periods expired.

Q: Did applying the amount to 2009 avoid the refund deadline?
A: No. Virginia treated the credit request under the same refund rules.

Q: Was every later refund possibility foreclosed?
A: Not necessarily. A qualifying NOL carryback could be claimed through timely amended returns under its own limitations period.

Citations and references

• Va. Code §§ 58.1-301, 58.1-499 D, 58.1-1823 A, and 58.1-1824.
• IRC § 172(b); 23 VAC 10-110-84.
• Virginia Public Document 09-88.

Subject

Amended return was not filed within the statute of limitations.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-92

Original ruling text

June 10, 2013

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you appeal the Department's denial of the application of an overpayment credit for individual income tax paid by * (the "Taxpayers") for the taxable year ended December 31, 2008.

FACTS

In October 2012, the Taxpayers filed a Virginia individual income tax return for the 2009 taxable year reporting a tax. The Department processed the return and issued an assessment for the tax due. The Taxpayers also filed an amended return for the 2008 taxable year reporting an overpayment of tax and requested that this overpayment be credited to the 2009 taxable year. The Department denied the request to credit the overpayment because the amended return was not filed within the statute of limitations. The Taxpayers appeal the denial of the credit, requesting that the Department waive the statute of limitations.

DETERMINATION

Statute of Limitations

In general, Va. Code § 58.1-499 D specifies that the Department cannot issue a refund, "whether on discovery by the Department or on written application of the taxpayer, if such discovery is not made or such written application is not received within three years from the last day prescribed by law for the timely filing of the return." [Emphasis added.]

Title 58.1 of the Code of Virginia does include a number of exceptions to the general rule for individual income taxpayers. The exceptions, however, are limited to specific scenarios and are strictly construed. For example, pursuant to the authority granted the Tax Commissioner by Va. Code § 58.1-1824, a protective claim for refund may be filed within three years of the date of an assessment.

In addition, Virginia Code § 58.1-1823 A allows any person to file an amended return with the Department within the later of:

1. three years from the last day prescribed by law for the timely filing of a return;

2. one year from the final determination of any change or correction in the liability for federal income tax, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such federal change or correction;

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

4. two years from the payment on assessment, provided that the amended return raises issues relating solely to the assessment and that the refund does not exceed the amount of such payment; or

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

Although the Taxpayers requested that any overpayment of tax for the 2008 taxable year be applied against any income tax liability for the 2009 taxable year instead of a refund, the laws regarding, refunds still apply. See Public Document (P.D.) 09-88 (5/28/2009). In this case, the Taxpayers’ 2008 amended return was filed in October 2012, well after the general statute of limitations had expired. I have thoroughly reviewed the facts and the Taxpayers' circumstances, but I am unable to find any provision under Title 58.1 of the Code of Virginia that would authorize me to grant the Taxpayers' request for refund because it was submitted after all applicable statute of limitation provisions expired.

While I empathize with your situation, the Department is bound by the clear requirements under the law and is not empowered to waive the statute of limitations in this situation. Accordingly, I am unable to grant the Taxpayers' request for crediting the 2008 overpayment to the 2009 taxable year.

Net Operating Loss

A review of the documents provided by the Taxpayers indicates that they may have incurred a net operating loss (NOL) in a recent taxable year. While the documentation shows the Taxpayers have filed refund claims with the internal Revenue Service (IRS), it is unclear whether any such claim has been made to the Department.

Virginia income tax laws do not address the computation or application of net operating loss deductions (NOLDs). Nonetheless, Va. Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia have the same meaning as provided in the Internal Revenue Code (IRC), with certain exceptions, unless a different meaning is clearly required. For individual income tax purposes, Virginia generally "conforms" to federal law in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI).

Under one of the conformity exceptions, Virginia does not allow the five-year carryback period permitted under IRC § 172(b)(1)(H). See Va. Code § 58.1-301 B 2. With the exception of this federal carryback provision, Virginia allows federal NOLDs to the extent that they are included in computing FAGI. See Title 23 of the Virginia Administrative Code (VAC) 10-110-84.

Generally, IRC § 172(b)(1)(A) permits NOLs to be carried back two years and carried forward 20 years from the year of loss. Taxpayers may, however, elect to forego the NOL carryback pursuant to IRC § 172(b)(3). Unless such an election is made, the NOL must first be carried back to the earliest of the carryback years. The resulting NOLD, to the extent it exceeds taxable income for the taxable year to which it is carried, is carried forward to the next earliest taxable year in chronological order until it is completely absorbed.

If the Taxpayers incurred an NOL for a recent taxable year and have filed a refund claim with the IRS, they may file amended returns to carryback the NOLD in accordance with this determination provided the amended returns are filed within the statutory limitations allowed under Va. Code § 58.1-1823.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5242468176.B