Were Virginia's 2011 and 2012 individual income tax assessments issued within the statute of limitations?

Plain-English summary

Virginia abated the taxpayer's 2011 individual income tax assessment because it was issued more than three years after the return's due date and filing date. The Department could assess that late only if the return was false or fraudulent with intent to evade tax. It found no such intent because the taxpayer had filed and paid income tax in another state and interstate credits typically prevent double taxation of the same income.

The result was different for 2012. That return was filed in May 2015, and Virginia issued the assessments in March 2017—within three years of filing—so the Department upheld them. The ruling also notes that the 2010 and 2013 assessments had already been abated.

Common questions

Does filing a return start Virginia's three-year assessment period? In this ruling, Virginia applied the period from the later of the return's due date or its actual filing date.

Can Virginia assess after three years? The ruling says the Department may assess at any time when no return is filed or a false or fraudulent return is filed with intent to evade tax. It found that exception did not apply to the 2011 return.

Citations and references

• Va. Code §§ 58.1-1812, 58.1-341 A, and 58.1-312 A

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-121

Original ruling text

June 20, 2018

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessments issued to * (the “Taxpayer”) for the taxable years ended December 31, 2010, through 2013. I apologize for the delay in responding to your appeal.

FACTS

For the 2011 taxable year, the Taxpayer filed a Virginia nonresident individual income tax return in April 2012. Under review, the Department determined that the Taxpayer was an actual resident of Virginia and issued an assessment in April 2017.

For the 2012 taxable year, the Department received information from the IRS indicating that the Taxpayer may have been required to file a Virginia income tax return. The Department requested additional information from the Taxpayer. When no response was received, the Department issued an assessment in June 2015. Thereafter, the Taxpayer filed a nonresident return for the 2012 taxable year. The assessment was adjusted, and the Taxpayer paid the balance due. Under review, the Department determined that the Taxpayer was a resident of Virginia for the 2012 taxable year and adjusted the nonresident return to a resident return and issued an assessment in March 2017 and an additional small assessment soon thereafter. In April 2017, upon receipt of additional information, the Department determined that the Taxpayer was a part-year resident of Virginia in 2012 and adjusted the assessment accordingly.

The Taxpayer appealed the assessments, contending that the Department issued them after the statute of limitations had expired. The Department's records indicate that the assessment at issue for the 2010 taxable year has been abated. In addition, the audit staff has abated the assessment for the 2013 taxable year based on information provided while the appeal was pending. Therefore, the remaining issue is whether the outstanding assessments for the 2011 and 2012 taxable years were issued within the statute of limitations.

DETERMINATION

Virginia Code § 58.1-1812 allows the Department to assess omitted taxes within three years of the latter of the due date of the return or the actual date that the return was filed. 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. Under Virginia Code § 58.1- 312 A, the Department may assess underreported tax at any time when a Taxpayer fails to file a return or files a false or fraudulent return with the intent to evade tax.

The 2011 return was filed in April 2012, and the 2011 assessment was issued in April 2017, more than three years beyond the due date or actual filing date of the return. The 2011 assessment, therefore, could only have been issued if the return was filed falsely or fraudulently with the intent to evade tax. The Taxpayer filed income tax returns in * (State A) for the years in question and paid the associated income tax. Because states typically grant credits for income tax paid to other states on the same income, either the Taxpayer's Virginia or *** income tax liability would have been reduced accordingly on any tax the Taxpayer would have paid to both states on the same income. Therefore, the Department finds that the Taxpayer did not have the requisite intent to file a false or fraudulent return with the intent to evade tax, and the assessment for the 2011 taxable year was made outside the statute of limitations. Accordingly, the 2011 assessment will be abated.

The return for the 2012 taxable year was - filed in May 2015, and the 2012 assessments were issued in March 2017. Under Virginia Code § 58.1-1812, the Department had three years from the filing of the return within which to issue the assessments. Therefore, the 2012 assessments were timely issued. The 2012 assessments, therefore, are upheld. The Taxpayer will receive an updated bill that will include accrued interest to date. The Taxpayer should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collections actions.

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/1348.A