Was a Virginia corporate refund return timely when filed within one year after an IRS adjustment to NOL carrybacks, despite the ordinary three-year period?

Subject

Federal NOL adjustment reopened Virginia refund period

Plain-English summary

The amended Virginia return was timely because the corporation filed it within one year after the IRS's final NOL-carryback determination. The ordinary three-year refund period did not bar this federal-change claim.

The IRS adjusted net operating losses carried from 2001 and 2002 back to 2000 and issued its final determination in August 2012. The taxpayer filed the amended 2000 Virginia corporate return in March 2013, seeking a refund.

Virginia law required federal audit changes to be reported within one year and gave the taxpayer the same one-year period to file a refund return. Virginia directed the Department to process the amended return and issue any resulting overpayment with applicable interest.

What this means for you

• A final IRS adjustment can create a special Virginia amendment and refund window.
• The one-year period runs from the final federal determination, so preserve that date and file promptly.
• A taxpayer seeking money back must file the amended return to protect the refund right.

Citations and references

• Va. Code §§ 58.1-311, 58.1-312 A 3, and 58.1-1823 A(ii).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-168

Original ruling text

September 12, 2014

Re: § 58.1-1821 Appeal: Corporate Income Tax

Dear *:

This will reply to your letter in which you seek a refund of corporate income tax paid by * (the "Taxpayer") for the taxable year ended December 31, 2000. I apologize for the delay in responding to your request.

FACTS

The Internal Revenue Service (IRS) audited that Taxpayer and made adjustments to carryback net operating losses (NOLs) from the 2001 and 2002 taxable years to the 2000 taxable year. The Taxpayer filed an amended Virginia corporate income tax return for the 2000 taxable year requesting a refund.

The Department denied the Taxpayer's request for a refund on the basis that the amended return was not filed within the three-year limitations period. The Taxpayer appeals the denial of the refund, contending that it filed the amended return within the limitations period required to report a federal change.

DETERMINATION

In accordance with Va. Code § 58.1-311, a taxpayer audited by the Internal Revenue Service is required to file an amended return and report the changes to the Department within one year of the final determination of the change. If such changes are not reported, the Department is authorized to make adjustments to the Virginia returns at any time. See Va. Code § 58.1-312 A 3.

Further, under Va. Code § 58.1-1823 A(ii), a taxpayer has one year from the final determination of a federal change or correction to file an amended return to request a refund. It is incumbent upon a taxpayer to file an amended return when a refund is involved in order to protect its statutory rights to the refund.

In this case, the IRS's final determination was issued in August 2012. The amended return for the 2000 taxable year was filed in March 2013, well within the one year period prescribed under Va. Code § 58.1-1823. As such, the Taxpayer's amended 2000 Virginia corporate return was timely filed.

The amended return will be processed and the income tax liability adjusted in accordance with this determination. If the adjustments result in an overpayment of tax, a refund including applicable interest will be issued.

The Code of Virginia sections 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 Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5565832694.B