Were corporate refund claims timely when Virginia amended returns were filed more than one year after IRS closing agreements became final?

Subject

Statute of Limitations

Plain-English summary

A corporation entered IRS settlement agreements affecting its federal liability for tax years ending in 2001 and 2007. It later filed amended Virginia corporate returns seeking refunds, but Virginia denied them as late.

An IRS closing agreement under IRC § 7121 was a final federal determination when the taxpayer received notice that the Commissioner of Internal Revenue had signed it. The taxpayer received those notices on January 27, 2015 and December 19, 2014, but filed the corresponding Virginia amended returns on February 29 and February 8, 2016. Both filings missed the one-year deadline in Va. Code § 58.1-1823 A (ii).

The Department said the statute gave it no discretion to excuse the delay because the settlement required many amended returns with different deadlines or because the taxpayer believed it had exercised reasonable care.

Practical takeaway

Track the date the taxpayer receives notice that an IRS closing agreement has been signed. Under the rule applied here, the Virginia refund claim had to be filed within one year of that final-determination date.

Citations and references

• Va. Code § 58.1-1823.
• 23 VAC 10-20-180 B 4.
• IRC § 7121.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-51

Original ruling text

April 6, 2017

Re: § 58.1-1821 Application: 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 years ended September 30, 2001, and 2007.

FACTS

The Taxpayer and the Internal Revenue Service (IRS) entered into settlement agreements regarding changes to the Taxpayer's federal income tax liability for the taxable years ended September 30, 2001, and 2007. The Taxpayer filed amended Virginia corporate income tax returns to claim refunds resulting from the changes. The Department denied the refunds because the returns were filed more than one year after the agreements were finalized. The Taxpayer appeals, contending that the settlement resulted in numerous amended returns having to be filed with different filing deadlines, and it exercised reasonable care in attempting to file the returns on time.

DETERMINATION

The general rule is that an amended return must be filed within three years of the original or extended due date, as applicable, to claim a refund. See Va. Code § 58.1­-1823. Virginia Code § 58.1-1823, however, also includes a number of exceptions to the general rule when specific circumstances are present.

Specifically, Va. Code § 58.1-1823 A (ii) permits a taxpayer one year from the final determination of a federal change or correction to file an amended return to request a refund. Title 23 of the Virginia Administrative Code (VAC) 10-20-180 B 4 provides that a closing agreement entered into with the IRS under § 7121 of the Internal Revenue Code (IRC) constitutes a final determination for purposes of Va. Code § 58.1­-1823. The final determination occurs when the taxpayer receives notice of the signing by the Commissioner of Internal Revenue.

The information provided indicates the Taxpayer was notified that the IRS had accepted the agreements for the taxable years ended September 30, 2001, and 2007, on January 27, 2015, and December 19, 2014, respectively. The return for the taxable year ended September 30, 2001, however, was not filed until February 29, 2016. The return for the taxable year ended September 30, 2007, was not filed until February 8, 2016. In each case, the return was filed more than one year after the final determination date.

Virginia Code § 58.1-1823 is clear and does not provide the Department with any discretion in enforcing the limitations periods to file an amended return to claim a refund. Accordingly, the Department must deny your request for refund of the overpayment of corporate income tax for the taxable years ended September 30, 2001, and 2007.

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/1113.M