Did a timely appeal of a foreign-source-income adjustment preserve unrelated audit issues that were first raised more than 90 days after assessment?

Subject

Timely appeal of one adjustment did not preserve new issues

Plain-English summary

Virginia refused to consider unrelated audit issues first raised after the 90-day appeal deadline. The corporation's original timely appeal challenged only disallowance of its foreign-source-income subtraction.

Virginia later allowed that subtraction after receiving the requested records and revised the audit. But the taxpayer's February 2014 request then challenged other adjustments from the December 2011 assessment.

Because a complete appeal must identify each alleged error, the original single-issue appeal did not preserve those new issues. The later request was time-barred.

What this means for you

• A timely appeal should identify every assessment error the taxpayer wants reviewed.
• Preserving one adjustment does not automatically preserve unrelated issues.
• Later success on the appealed issue does not restart the deadline for the original assessment.
• The 90-day period is measured from the assessment date.

Citations and references

• Va. Code § 58.1-1821; 23 VAC 10-20-165 D 1 f A.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-135

Original ruling text

August 8, 2014

Re: § 58.1-1821 Application: Corporate Income Tax

Dear *:

This will reply to your letter in which you seek correction of the corporate income tax assessments issued to * (the "Taxpayer") for the taxable years ended August 31 2006 through 2008.

FACTS

The Taxpayer was audited by the Department for the taxable years at issue and numerous adjustments were made. One of the adjustments made by the auditor was to eliminate the foreign source income (FSI) subtraction. The Taxpayer timely appealed the disallowance of the FSI subtraction. In Public Document (P.D.) 12-198 (12/6/2012), the Department upheld the assessment because the Taxpayer had not provided requested documentation, but provided one last opportunity to comply with the Department's request.

After the Taxpayer provided the requested documentation, the Department allowed the FSI subtraction. See P.D. 14-8 (1/24/2014). The assessments were adjusted in accordance with the determination and a revised audit report was issued to the Taxpayer. The Taxpayer has now asked for a review of adjustments made in the audit report unrelated to the FSI Subtraction.

DETERMINATION

Virginia Code § 58.1-1821 states, "Any person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of such assessment, apply for relief to the Tax Commissioner. Such application shall be in the form prescribed by the Department and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer's contention." Pursuant to Va. Code § 58.1-1821 and Title 23 of the Virginia Administrative Code (VAC) 10-20-165, a complete appeal must be filed with the Tax Commissioner within 90 days from the date of assessment. Further, Title 23 VAC 10-20-165 D 1 f A provides that an appeal must set forth each alleged error in the assessment, the grounds upon which the taxpayer relies and all facts relevant to the taxpayer's contention.

The Taxpayer filed an appeal within the 90-day limitations period. This appeal only alleged that the FSI subtraction adjustment was erroneous, resulting in the issuance of P.D. 12-198 and P.D. 14-8.

The Taxpayer's current appeal raises new issues that were not contested in the original appeal. Because a complete appeal on these issues was not presented at the time the appeal of the FSI subtraction adjustment was filed, the appeal of these new issues is subject to the 90-day limitation for filing an appeal under Va. Code § 58.1-1821.

The assessment was issued in December 2011. As such, the appeal on the new issues was submitted well after the expiration of the 90-day limitations period. Therefore, the Taxpayer's application for correction pursuant to Va. Code § 58.1-1821 dated February 21, 2014, is barred by the statute of limitations.

An updated bill, with interest accrued to date, will be sent to the Taxpayer. The outstanding balance should be paid within 30 days of the bill date to avoid additional interest charges. The Taxpayer should remit its payment to: Virginia Department of Taxation, 600 East Main Street, 23rd Floor, Richmond, Virginia 23219, Attention: *. If you have any questions concerning payment of the assessment, you may contact at **.

The Code of Virginia sections, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. 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/1-5640378127.B