Can a taxpayer still appeal a converted sales and use tax assessment after the 90-day appeal deadline has passed, and what options remain if they cannot afford to pay it?

Plain-English summary

A company failed to file sales and use tax returns for several months between February 2007 and June 2009. When it did not respond to the Department of Taxation's inquiries, the auditor estimated the tax due and issued an assessment, which the Department later revised after the company provided more information. In June 2010, the Department converted that assessment to an individual identified as the "Taxpayer," based on liabilities incurred by the company, and began collection action.

The Taxpayer eventually appealed, arguing the Department had violated the Virginia Taxpayer Bill of Rights when issuing the assessment. But the appeal came far too late. Virginia Code § 58.1-1821 gives a person assessed with any Department-administered tax only 90 days from the date of the assessment to apply for relief. Because the converted assessment was issued in June 2010 and the appeal was filed years afterward, the Tax Commissioner held that the 90-day deadline had long since expired and the appeal was barred from review.

Even setting the timing problem aside, the Tax Commissioner found the Taxpayer's substantive complaints did not hold up. The Taxpayer claimed the auditor failed to discuss the business's operations, explain the audit process, explain how the tax laws applied, provide a copy of the audit report, or explain appeal rights, all of which the Taxpayer said the Department's own Taxpayer Bill of Rights publication required. A review by the Department's Appeals and Rulings staff found the auditor had made repeated written and telephone attempts to reach the Taxpayer, that the Taxpayer's lack of response was what limited the audit process, that the Taxpayer later did provide information leading to a reduced assessment, and that Department records showed a letter with the audit report and an explanation of appeal rights was sent when the audit concluded. The Tax Commissioner denied the appeal both because it was untimely and because it lacked a factual or legal basis to correct the assessment.

Because paying the assessment in full could create a financial hardship, the ruling notes the Taxpayer could instead pursue an offer in compromise (OIC) based on doubtful collectability, which requires submitting specific financial disclosure forms to the Department for review.

What this means for you

The 90-day appeal window is strict

Under Va. Code § 58.1-1821, a taxpayer has only 90 days from the date of an assessment (including a converted assessment) to apply for relief with the Department. This ruling shows that deadline is enforced even when the delay is measured in years and even when the taxpayer raises procedural complaints about the audit. Track assessment dates carefully and act immediately if you intend to contest one.

Taxpayer Bill of Rights complaints must be backed by the record

Citing the Department's Taxpayer Bill of Rights publication (which implements Va. Code § 58.1-1845) is not enough on its own. The Department will check its own audit records, including documented contact attempts and correspondence, before accepting a claim that required procedures were skipped. If a taxpayer does not respond during an audit, the Department may treat that non-response as the reason certain discussions with the auditor did not happen.

An offer in compromise is a separate path from an appeal

Even where an appeal is barred or denied, a taxpayer facing genuine inability to pay can request an offer in compromise for doubtful collectability by submitting the OIC-Fee, OIC I-3, and FIN I-1 forms to the Department. The Department reviews the taxpayer's financial situation and responds; if the forms are not returned within 90 days, the Department will presume no offer is being made and resume collection.

Common questions

Q: Does a converted assessment (moved from a company to an individual) get a new 90-day appeal clock?
A: Based on this ruling, the Department measured the 90-day deadline from the date the assessment was converted to the Taxpayer (June 2010), but an appeal filed years after that conversion date was still found untimely.

Q: Can I still argue the Department violated the Taxpayer Bill of Rights if my appeal is late?
A: The Tax Commissioner in this ruling addressed the Taxpayer Bill of Rights claim even though the appeal was untimely, but ultimately found no basis for it in the Department's audit records, and the appeal was denied on both timeliness and merits.

Q: What can I do if I owe a valid assessment but truly cannot afford to pay it?
A: This ruling points to requesting an offer in compromise based on doubtful collectability, which requires submitting the OIC-Fee, OIC I-3, and FIN I-1 forms so the Department can review your financial situation.

Q: What happens if I don't respond to the Department's forms after requesting an offer in compromise?
A: Per this ruling, if the Department does not receive the completed forms within 90 days of its letter, it will presume the taxpayer will not submit an offer in compromise, and collection action will resume.

Citations and references

• Va. Code § 58.1-1821 (90-day deadline to apply for relief from an assessment)
• Va. Code § 58.1-1845 (Virginia Taxpayer Bill of Rights)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-153

Original ruling text

September 1, 2020

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you seek correction of the retail sales and use tax assessment converted to * (the “Taxpayer”), as a result of liabilities incurred by *** (the “Company”), for the period February 2007 through June 2009.

Background Information

As a result of the Department’s audit, it was discovered that the Company had failed to file sales and use tax returns for a number of months in the audit period. When the Company did not respond to the Department’s inquiries, the Department’s auditor estimated the amount of sales tax due and issued an assessment. Based on information subsequently provided by the Taxpayer, the Department revised the assessment accordingly. The assessment was later converted to the Taxpayer in June 2010 and collection action was initiated. The Taxpayer appeals, contending that the Department violated the Virginia Taxpayer Bill of Rights in issuing the assessment.

Statute of Limitations

Virginia Code § 58.1-1821 states, “Any person assessed with any tax administered by the Department of Taxation may, within 90 days from the date of such assessment, apply for relief to the Department and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer’s contention.”

The converted assessment in question was issued in June 2010, and the 90-day deadline to file an appeal has expired. Accordingly, the Taxpayer’s appeal was not timely filed, and is barred from review in accordance with the cited statute.

Taxpayer Bill of Rights

The Taxpayer contends that the assessment should be abated on the basis that the Department violated the Taxpayer Bill of Rights in issuing the assessment. Virginia Code § 58.1-1845 sets out the Taxpayer Bill of Rights. The statutory provisions are expanded on in a publication of the same name issued by the Department and posted on the Department’s website. The Taxpayer complains that several audit procedures described in the publication were not followed, namely that the auditor failed to: (1) discuss the operation of the business; (2) discuss the audit process; (3) explain how tax laws and policies applied to the business transactions; (4) provide a copy of the audit report; and (5) explain the Taxpayer’s appeal rights.

A number of years have passed since the audit was completed. Nevertheless, a member of my Appeals and Rulings staff researched the audit history and discovered that the auditor made attempts in writing and by telephone to reach the Taxpayer. When no responses were received, an assessment was issued based on the limited information available. It would not be possible for the Department’s auditor to discuss the operation of the business or the audit process and explain how tax laws and policies applied to the business if the Taxpayer does not communicate with the Department’s auditor during an audit. It appears that the Taxpayer subsequently worked with the auditor to provide information, which resulted in the assessment being partially reduced. The Department’s records indicate that a letter was sent to the Taxpayer upon conclusion of the audit, including a copy of the audit report and an explanation of the Taxpayer’s appeal rights.

While the Department aspires to follow all of the audit procedures described in the Taxpayer Bill of Rights publication, appeals must be decided on the merits of the case. Even if this appeal had been timely filed, the Taxpayer has provided no legal or factual grounds specifically pertaining to the Company’s sales and use tax liability upon which to base a correction of the assessment.

Because the Taxpayer did not file an appeal until after the deadline for filing an appeal under Virginia Code § 58.1-1821 had passed, the appeal must be denied. Even if the appeal had been timely filed, the Taxpayer’s contentions that the Department failed to follow certain field audit procedures as described in its Taxpayer Bill of Rights publication do not create a basis upon which the assessment can be abated in this case. Based on a review of the Department’s records, the specific procedures the Taxpayer mentioned either were performed by the auditor or were not performed because of the Taxpayer’s failure to respond to audit inquiries.

OIC – Doubtful Collectability

The Taxpayer indicates that paying the full amount of the assessment may cause a financial burden. As such, the Taxpayer may wish to request an offer in compromise based on doubtful collectability. The Taxpayer must present evidence of doubtful collectability to support a claim of financial hardship.

If the Taxpayer wishes to pursue a settlement based on doubtful collectability, please complete and return the enclosed OIC-Fee, OIC I-3 and FIN I-1 forms to: Tax Commissioner, Virginia Department of Taxation, Post Office Box 2475, Richmond, Virginia 23218-2475. These forms will allow the Department to review and analyze the Taxpayer’s financial situation. Upon completion of the Department’s review, a response will be issued based upon the information provided. If the Department does not receive the completed forms within 90 days of the date of this letter, it will be presumed that the Taxpayer will not submit an offer in compromise based upon doubtful collectability and collection action will resume.

The Code of Virginia sections cited are available on-line at www.virginia.tax.gov in the Laws, Rules and 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/3407.M