Did timely protective claims produce additional Virginia refunds for the taxpayer's 2010 and 2011 overpayments?

Subject

Protective claims did not produce an additional refund

Plain-English summary

The taxpayer's protective claims did not produce any additional refund. The claims were timely because they were filed in August 2015, within three years after the relevant October 2014 self-assessments. The Department nevertheless decided the claims on their merits and reached different reasons for 2010 and 2011.

For 2010, the original return was due May 2, 2011 because May 1 fell on a Sunday. To obtain a refund, it had to be filed by May 2, 2014. The taxpayer did not file until October 2014, and the Department had no discretion to extend the three-year limitation. The 2010 refund was denied.

For 2011, the Department had previously applied the refund to an unpaid 2009 assessment based on IRS information. Later IRS information showed that the taxpayer had not underreported income. Virginia reissued the 2011 refund in December 2014 and included applicable refund interest.

Result: no 2010 refund was legally available, and no further 2011 refund was due because it had already been paid with interest.

What this means for you

• A protective claim can be timely while the underlying refund request still fails under a separate limitation period.
• Filing an original return late can eliminate an overpayment refund even if a later appeal is prompt.
• Reconcile refund offsets and reissued payments before asserting that an amount remains unpaid.
• Keep IRS adjustment notices because corrected federal information can change a Virginia offset or assessment.

Common questions

Q: Was the protective claim timely?

A: Yes. The Department treated the October 2014 filed returns as self-assessments and the August 2015 claims as within three years.

Q: Why was the 2010 refund still denied?

A: The original 2010 return was filed after the separate three-year refund deadline expired on May 2, 2014.

Q: What happened to the 2011 refund?

A: It was reissued in December 2014 with applicable refund interest, so nothing more was due.

Citations and references

• Va. Code §§ 58.1-1820, 58.1-1821, and 58.1-1824.
• Va. Code § 58.1-499(A), (D).
• Va. Code § 58.1-341(A).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-239

Original ruling text

December 22, 2015

Re: § 58.1-1824 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek a refund of the overpayment of individual income tax paid by * (the "Taxpayer") for the taxable years ended December 31, 2010, and 2011.

FACTS

The Taxpayer has filed protective claims for refund for the 2010 and 2011 taxable years. Each of the taxable years will be addressed separately below.

DETERMINATION

Protective Claim

Virginia Code § 58.1-1824 permits any person who has paid an assessment of taxes administered by the Department of Taxation to file a protective claim for refund within three years of the date of an assessment. Self-assessments made by a taxpayer upon the filing of a return are considered assessments for purposes of applying the protective claim provisions. See Va. Code § 58.1-1820. In the case of taxes requiring an annual or monthly return, self-assessments are deemed made when the return is filed. In this case, the Taxpayer filed his Virginia individual income tax return in October 2014 and his protective claim in August 2015. Therefore, the protective claim was timely filed.

Pursuant to the authority granted the Department under Va. Code § 58.1-1824, a protective claim for refund can be held pending the outcome of another case before the courts or the claim may be decided based upon its merits pursuant to Va. Code § 58.1- 1821. As permitted by statute, the Taxpayer's request has been treated as an appeal under Va. Code § 58.1-1821.

2010

The Taxpayer filed his individual income tax return for the 2010 taxable year in October 2014. The Department denied the Taxpayer's refund request for that taxable year, however, because the return was filed outside the statute of limitations.

Virginia Code § 58.1-499 A provides that in the case of any overpayment of any tax, whether by reason of excessive withholding, overestimating and overpaying estimated tax, or error on the part of the taxpayer, the Department shall order a refund of the overpayment. Virginia Code § 58.1-499 D specifies, however, in pertinent part that:

No refund under this section . . . shall be made . . . 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.]

Virginia Code § 58.1-341 A requires that a taxpayer file an individual income tax return by May 1 of the year following the tax year for which the return is filed. Based on Virginia statutes, the due date for the Taxpayer's 2010 individual income tax return was May 2, 2011 (May 1, 2011, was on a Sunday). As such, the return was required to be filed by May 2, 2014, in order to receive a refund for the 2010 taxable year.

The Department's records indicate the original 2010 Virginia income tax return was not filed until October 2014, after the statute of limitations had expired. The provisions of Va. Code § 58.1-499 D are clear and do not provide the Department with any discretion in enforcing the three-year limitations period to apply for a refund. In addition, the Department advised the Taxpayer in December 2011 that a 2010 return had not been filed, and the Department has no record that the Taxpayer filed a claim concerning this matter until the present appeal was filed. Accordingly, I cannot approve your request for refund of the overpayment of individual income tax for the taxable year ended December 31, 2010.

2011

The Taxpayer filed a 2009 Virginia individual income tax return in April 2010, reporting an overpayment of income tax and requesting a refund, which the Department issued. Subsequently, the Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer had underreported his income, and the Department issued an assessment. When the assessment went unpaid, the Department applied the Taxpayer's Virginia income tax refund for the 2011 taxable year toward the balance due.

According to the Department's records, the refund was reissued in December 2014 based on new information from the IRS indicating that the Taxpayer had not, in fact, underreported any income. The amount also included applicable refund interest. As such, there is no longer a refund due to the Taxpayer for the 2011 taxable year.

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 Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-6141861977.M