Was a refund request timely when the taxpayer sent Virginia the IRS reversal within four months of the federal change?

Plain-English summary

Virginia collected a 2009 assessment through a wage lien after an IRS audit disallowed deductions. The IRS later reversed its determination, and the taxpayer sent Virginia the revised federal letter four months after that change.

Virginia held that the taxpayer had one year from the federal change to request a refund and that the submitted documentation was sufficient to recompute the Virginia liability. The request was timely, so the Department ordered a refund of the lien payments with applicable interest.

Citations and references

• Va. Code §§ 58.1-499 A and 58.1-311
• 23 VAC 10-160-320 D and 23 VAC 10-20-180 B
• P.D. 10-260

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-32

Original ruling text

March 21, 2018

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you (the “Taxpayer”) seek correction of the Department's denial of an individual income tax refund for the taxable year ended December 31, 2009. I apologize for the delay in responding to your request.

FACTS

The Taxpayer was audited by the Internal Revenue Service (IRS) for the 2009 taxable year. The IRS denied certain itemized deductions and forwarded its determination to the Department in June 2013. The Department adjusted its records according to the federal report, and issued an assessment for additional tax. The Department later issued a lien against the Taxpayers wages, and payments were received in October 2013. The assessment was paid in full.

In April 2014, the IRS reversed its determination and the Taxpayer provided a copy of the revised determination letter to the Department in August 2014 and again in July 2015. The Department abated the 2009 assessment in July 2015. The Taxpayer inquired about the refund of the lien payments in February 2016 and was advised that the statutory period for the refund had expired. The Taxpayer filed an appeal to request a refund of the lien payments.

DETERMINATION

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. No refund however, of any amount under this section shall be made by discovery or written application if such discovery or written application is not received within three years from the last date prescribed by law. See Title 23 of Virginia Administrative Code (VAC) 10-160-320 D.

Under Virginia Code § 58.1-311, a taxpayer audited by the IRS is required to file an amended return and report the changes. Title 23 VAC 10-20-180 B defines a final determination of a change in liability for federal tax purposes to include with certain exceptions, the refund by the IRS of any federal income or estate tax. A final determination may also include a copy of an RAR, Form 870, 90-day letter, closing agreement, or court decision. In Public Document (P.D.) 10-260 (12/2/2010) the Department found that when a taxpayer is audited by the IRS and provides sufficient details to recompute accurately the proper FAGI for Virginia income tax purposes, no amended return is required.

In August 2014, the Taxpayer submitted a copy of the revised federal determination letter dated April 28, 2014, in which the IRS accepted the Taxpayer's itemized deductions as originally claimed. The Department abated the assessment based on information provided by the Taxpayer; however, no refund was issued for the lien payments applied to the assessment.

The Taxpayer had one year from the date of the federal change to request a refund of the overpayment of tax. Because the Taxpayer provided the Department with sufficient documentation within four months of the federal change, the refund request for the 2009 taxable year was submitted timely. Accordingly, the Department will issue a refund, including applicable interest, to the Taxpayer.

The Code of Virginia sections, regulation and public document 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/864.D