Did financial disability or a timely estimated payment extend Virginia's deadline for a 2012 refund?

Plain-English summary

Virginia refused to reconsider its denial of the taxpayers' 2012 refund. The financial-disability argument had already been addressed, did not satisfy the reconsideration criteria, and federal financial-disability tolling did not change Virginia's refund limitation period.

The taxpayers' timely estimated payment also did not preserve the refund indefinitely. Virginia can refund overpayments only within the authority and deadlines provided by state law, even where the return ultimately reports no tax liability and the overpayment consists of withholding plus estimated payments.

The ruling also rejected reliance on return instructions as a substitute for statutes, regulations, rulings, and other authoritative Virginia tax law. The earlier determination in P.D. 17-194 remained the Department's final decision.

Common questions

Did the Department have discretion to waive the refund deadline? No. The ruling said it could not adjust the statute of limitations at its discretion.

Did paying estimated tax on time guarantee a refund? No. A refund still required a timely claim.

Citations and references

• 23 VAC 10-20-165 F
• Va. Code §§ 58.1-341 F, 58.1-492, and 58.1-499
• P.D. 17-194, P.D. 10-38, and P.D. 10-204

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-109

Original ruling text

June 6, 2018

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek reconsideration of the Department's determination letter, issued as Public Document (P.D.) 17-194 (11/16/2017), to * (the “Taxpayers”) for the taxable year ended December 31, 2012.

FACTS

In P.D. 17-194, the Department upheld the denial of the Taxpayers' refund for the 2012 taxable year on the basis that the Taxpayers did not file their 2012 Virginia individual income tax return within the statute of limitations to claim a refund. The Taxpayers filed for a reconsideration, contending that the Department should toll the statute of limitations for a financial disability as permitted under the Internal Revenue Code (IRC). The Taxpayers also ask that the Department consider the fact that they timely submitted a payment.

DETERMINATION

Reconsideration

Under Title 23 of the Virginia Administrative Code (VAC) 10-20-165 F, a taxpayer's request for reconsideration must meet one of the four following requirements:

The facts upon which the original determination is based are misstated by the Tax Commissioner or are inaccurate, and the determination would have a different result based on a correction of the Tax Commissioner's misstatement of the facts presented or a clarification of the original facts presented in the taxpayer's administrative appeal;

The law upon which the original determination is based has been changed by legislation, court decision or other authority effective for the tax period(s) at issue;

The policy upon which the original determination is based is misapplied, and the determination would have a different result based on the application of the proper policy; or

The taxpayer has discovered additional evidence or documentation that was not available to the taxpayer at the time the original administrative appeal was filed with the Department, and the additional evidence or documentation could produce a result different from the original determination.

Because the Department already fully addressed the Taxpayers' argument regarding financial disabilities in P.D. 17-194, this argument fails to meet the reconsideration criteria. Even if Virginia Code § 58.1-341 F did not apply because the husband was not fully “disabled,” as the Taxpayers contend, they still would have been subject to the same filing deadlines as any other taxpayer. In addition, the Department has already acknowledged that the concept of financial disability under federal law has no bearing on the statute of limitations on refunds for Virginia income tax purposes. See P.D. 10-38 (4/8/2010) and P.D. 10-204 (9/2/2010).

Overpayments of Estimated Tax

The Taxpayers also appear to argue that they would not have lost their refund had they not made a prior estimated payment. Under current law, taxpayers are required to make timely income tax payments throughout the year by having tax withheld from wages or making estimated payments. Taxpayers who do not have enough tax withheld from their income must make four estimated tax payments throughout the taxable year. Failure to have sufficient income tax withheld from wages or failure to make sufficient estimated payments may result in the estimated tax underpayment penalty being assessed. See Virginia Code § 58.1-492.

The Taxpayers reported a Virginia income tax liability of zero when they filed their 2012 Virginia individual income tax return. As a result, the overpayment credit they claimed consisted of the entire amount of Virginia income tax withheld from wages plus their estimated payment. Although it is incumbent on taxpayers to estimate their Virginia income tax liability as accurately as possible to ensure the proper amount of income tax is withheld from wages or that appropriate estimated payments are made, the Department recognizes that often taxpayers pay more tax than their ultimate liability. That is the very reason why the Department has procedures in place to issue refunds or process overpayment credits in order to fulfill its obligations under Virginia Code § 58.1-499. As set forth in P.D. 17-194, however, the Department is not permitted to adjust the statute of limitations at its discretion, regardless of whether a financial disability may have existed or a payment was made in excess of the tax that was ultimately due.

Preparation of Returns

The Taxpayers argue that because the filing instructions for Virginia resident individual income tax returns require the simultaneous submission of certain federal schedules, it would be inconsistent to require the filing of the state return before the federal return was created. The information provided in Virginia's tax return instructions is intended to provide helpful guidance to taxpayers. It is not intended to provide a detailed explanation of every provision of or nuance of Virginia's tax law. A taxpayer must consult Virginia's statutes, ruling letters, regulations, court decisions, and other sources of tax jurisprudence in order to compute his Virginia tax liability correctly. The guidance provided in the Department's tax form instructions is not a substitute for these sources of Virginia's tax law and may not be relied upon as authoritative when a taxpayer is computing his Virginia taxable income. The Department's authority to issue a refund, however, exists only to the extent it is permitted by the Code of Virginia , which does not provide for a filing extension because of a financial disability.

CONCLUSION

Although I empathize with the Taxpayer's circumstances, the Department's determination in P.D. 17-194 is upheld. This letter constitutes the Department's final determination in this matter. 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/1536.M