Was a 2014 Virginia amended return claiming credit for another state's 2009 assessment filed within the special one-year period?

Subject

Return filed beyond the statute of limitations.

Plain-English summary

Virginia could not yet decide whether the amended return was timely. The normal three-year deadline for the 2009 return expired May 3, 2013, before the taxpayers filed their amended return in February 2014.

A special rule allowed an amended return within one year of another state's final determination, limited to the Virginia tax decrease attributable to that change. The taxpayers argued that the year began when they learned of the assessment in December 2013, but the statute measured from final determination, not notice.

The available court document showed an assessment, determination, or settlement date of January 11, 2013, but did not establish when the assessment was mailed or became final after the other state's 90-day appeal period. Virginia gave the taxpayers 30 days to provide definitive documentation; otherwise the refund denial would be upheld.

What this means for you

• The ordinary amended-return deadline and any special other-state adjustment deadline should both be calendared.
• Keep the other state's assessment notice, mailing date, appeal deadline, final determination, and proof of payment.
• Learning of an assessment later does not necessarily restart Virginia's statutory period.

Common questions

Did Virginia approve the refund? No. It gave one final opportunity to prove that the February 2014 filing fell within the special one-year period.

Was applying an overpayment to the next year different from requesting a refund? No. The ruling said the refund limitation rules still applied.

Citations and references

• Va. Code §§ 58.1-1821, 58.1-1823(A)(v), and 58.1-1824.
• 23 VAC 10-20-180(B)(3).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-98

Original ruling text

May 8, 2015

Re: § 58.1-1824 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you submit a protective claim concerning the denial of a Virginia individual income tax refund for * (the "Taxpayers") for the taxable year ended December 31, 2009.

FACTS

The Taxpayers were Virginia residents who owned rental property in * (State A). An audit by State A resulted in an income tax assessment. The Taxpayers state that they were not aware of the assessment until December 2013, after State A had initiated collection action. The Taxpayers paid the assessment and filed an amended Virginia return in February 2014 to claim a credit for income tax paid to State A. The Department denied the return on the basis that it was filed beyond the statute of limitations. The Taxpayers appealed, contending they could claim a refund within one year of being notified of the assessment.

DETERMINATION

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 Taxpayers' request has been treated as an appeal under Va. Code § 58.1-1821.

Although the Taxpayers requested that any overpayment of tax for the 2009 taxable year be applied against their income tax liability for the 2010 taxable year as an alternative to receiving a refund, the laws regarding refunds still apply. Generally, Va. Code § 58.1-1823 allows a taxpayer to file an amended return within three years from the last day prescribed by law for the timely filing of the return. The Taxpayers' 2009 return was due May 3, 2010 (May 1 was a Saturday). In order to timely file an amended return, the Taxpayers would have to have filed on or before May 3, 2013. In this case, the Taxpayers' 2009 amended return was filed in February 2014, well after the general statute of limitations had expired. Virginia Code § 58.1-1823, however, also includes a number of exceptions to the general rule when specific circumstances are present.

Under Va. Code § 58.1-1823 A (v), a taxpayer has one year from the final determination of a change made by any other state to file an amended return to request a refund, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such change. The Taxpayers contend that they had one year from when they were first notified of the State A assessment in December 2013 to file their amended Virginia return. Virginia Code § 58.1-1823 A (v), however, does not expressly provide for a notification requirement. Rather, the statute requires the taxpayer to file the amended return within one year of the other state's final determination.

Although the Department has promulgated regulations concerning what constitutes a final determination when the Internal Revenue Service (IRS) conducts federal audits, there are no statutes or regulations that define what a final determination is for other states. Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-20-­180 B 3, a federal final determination occurs upon the expiration of the 90 day time period within which a petition for redetermination may be filed with the United States Tax Court with respect to a statutory notice of deficiency issued by the IRS, if a petition is not filed with the court within that time. Similarly, State A has a process whereby a taxpayer may appeal an assessment. The Taxpayers could have filed an appeal within 90 days of the assessment mailing date, but they did not file one in this case. Similar to the regulation cited, therefore, the Department will consider the final determination date to be the date 90 days from the date the assessment was mailed.

The documentation provided, however, does not indicate what date the assessment was mailed. A court document concerning a lien merely indicates that the "assessment, determination or settlement date" was January 11, 2013. Although it is possible that this was the date the assessment was mailed or that it was mailed after January 11, 2013, it is also possible that the assessment had already been mailed and this was the date the determination became final after the Taxpayers failed to file an appeal. The Taxpayers did not file their amended return with Virginia until February 2014. If the Taxpayers had 90 days from January 11, 2013 (or some later date), to file an appeal, their amended Virginia return was timely filed. If the assessment had already been mailed and January 11, 2013, was the final determination date, however, the amended return was filed after the statute of limitations had expired.

The Taxpayers have indicated they do not know when the assessment was issued. The Department, however, will give the Taxpayers one last opportunity to provide documentation definitively showing State A's date of final determination. The documentation must be provided within 30 days of the date of this letter. Please send the documentation to the Department's Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attn: *. If the documentation is not received within the allotted time, the Department's denial of the refund will be upheld.

The Code of Virginia sections and regulation 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/1-5878542806.M