If a taxpayer timely files a Virginia amended return but waits years to send the Department the IRS's acceptance letter, is the refund still barred by the statute of limitations?

Plain-English summary

The taxpayer filed amended federal and Virginia individual income tax returns in October 2016, increasing an itemized deduction claimed for the 2014 tax year. The IRS took until June 2017 to formally accept the amended federal return. The taxpayer then waited until February 2020 -- citing medical issues -- before sending the Department the IRS's acceptance notice and asking that the Virginia refund be processed. The Department initially denied the refund because that February 2020 submission came more than a year after the June 2017 IRS notice, which appeared to violate the one-year deadline in Va. Code § 58.1-311 for reporting federal changes.

On appeal, the Tax Commissioner sided with the taxpayer. The key was that the original October 2016 amended Virginia return -- not the 2020 letter -- was the operative refund claim, and it was filed well within the three-year limitations period for refund claims under Va. Code § 58.1-1823. Because the itemized deduction amount on that 2016 amended return matched exactly what the IRS later accepted, the taxpayer never actually needed to file a new amended return after the 2017 IRS notice; he only needed to eventually show the Department that the IRS had agreed with the figures already reported. The Department treated the amended return as timely filed and ordered a refund of the overpayment.

What this means for you

Filing an amended return early protects your refund claim

If you amend your Virginia return to reflect a federal change (or an anticipated one) and file within three years of the original return's due date, that filing itself satisfies the refund statute of limitations -- even if IRS confirmation of the change doesn't arrive until later and you don't forward it to Virginia right away. The one-year "report a federal change" clock in § 58.1-311 matters when you haven't already told Virginia about the change; it does not force you to refile if your existing amended return already matches what the IRS ultimately approves.

Common questions

Q: Does the one-year deadline in Va. Code § 58.1-311 always apply to federal adjustments?
A: It applies when a taxpayer needs to report a federal change or correction to the Department. In this case the taxpayer had already reported the change via his October 2016 amended return, so he was not required to file another amended return within one year of the 2017 IRS notice because the IRS's determination matched what he had already filed.

Q: Why did the three-year rule in Va. Code § 58.1-1823 control instead of the one-year rule?
A: Because the taxpayer's amended return claiming the refund was itself filed within three years of the original return's due date, satisfying § 58.1-1823's limitations period for refund claims. The one-year rule in § 58.1-311 governs when a taxpayer must notify the Department of a federal change; it did not create a separate, later deadline here since the change had already been reported and matched the IRS's eventual determination.

Citations and references

• Va. Code § 58.1-1821 (application for correction of assessment, cited in the ruling's subject line)
• Va. Code § 58.1-311 (one-year requirement to report a federal change or correction by filing an amended return)
• Va. Code § 58.1-1823 (three-year limitations period to file an amended return claiming a refund)
• Public Document (P.D.) 10-183 (8/16/2010) (cited for the rule that a taxpayer need not file a second amended return after an IRS final determination that agrees with the amended return already filed)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-144

Original ruling text

August 18, 2020

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letters in which you seek a refund of individual income tax paid by * (the “Taxpayer”) for the taxable year ended December 31, 2014.

FACTS

The Taxpayer filed amended federal and Virginia income tax returns in October 2016 increasing the itemized deduction claimed for the 2014 taxable year. The Internal Revenue Service (IRS) issued a notice in June 2017 accepting the federal amended return as filed. The Taxpayer submitted the IRS acceptance to the Department in February 2020 requesting that the Virginia amended return be processed and a refund issued. The Department disallowed the refund request because it was outside the statute of limitations. The Taxpayer appealed contending he was unable to timely submit the refund request because he suffered from medical issues.

DETERMINATION

Virginia Code § 58.1 311 requires any individual to report a change or correction in federal taxable income within one year of the final determination of such change or correction by filing an amended return with the Department. The Taxpayer’s February 2020 refund request in response to the June 2017 IRS notice was submitted after the one year limitations period.

Pursuant to Virginia Code § 58.1 1823, however, an amended return claiming a refund may be filed within three years from the last day prescribed by law for the timely filing of the return. In this case, the Taxpayer’s amended return for the 2014 taxable year that reported the increase in the itemized deduction was filed in October 2016, well within the three years limitations period.

When a taxpayer files an amended Virginia return within the limitations period, the Department may request verification that the changes were accepted by the IRS. Under such circumstances, the taxpayer is not required to file another amended return after an IRS final determination if that determination is in agreement with the amended return. See Public Document (P.D.) 10-183 (8/16/2010).

In this case, the itemized deductions reported on the Virginia amended return were the same amount accepted by the IRS notice. As such, the Taxpayer was not required to file an amended Virginia return within one year of the IRS notice. Accordingly, the amended return will be processed as timely filed and the liability adjusted accordingly. A refund will be issued for any overpayment amount.

The Code of Virginia sections and public document 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/3405.B

Related Documents

10-183