Can a Virginia taxpayer get an income tax refund after the statute of limitations has run because their tax preparer made a filing error?

Subject

Administration : Refunds - Statute of Limitations; Records - Reliance on Tax Professional Advice

Plain-English summary

A husband and wife filed their 2015 Virginia individual income tax return in October 2019, reporting an overpayment and asking for a refund. The Department denied the refund because the return was filed well outside Virginia's refund statute of limitations. The Taxpayers appealed, arguing that they had actually filed their 2015 return back in 2016, but that an error by their tax preparer caused that return to be rejected, and they never received notice of the rejection.

The Department upheld the denial. Virginia's income tax system runs on self-assessment: taxpayers are responsible for computing their own tax, filing their own return, and making sure that happens correctly, even when they hire an accountant or preparer to do the work. Relying on a tax professional does not shift that responsibility to the Department, and if a preparer's error causes a problem, the taxpayer's remedy is against the preparer, not a waiver of the filing deadline. Under Va. Code § 58.1-499 D, no refund can be paid unless the Department discovers the overpayment or receives a written refund claim within three years of the return's original due date. Because a 2015 return was due May 2, 2016 (May 1 fell on a Sunday), the refund deadline was May 2, 2019. The Taxpayers could not produce documentation proving they had actually filed a 2015 return back in 2016, and the Department's own records showed the return was not filed until October 2019 -- after the deadline had already passed. Because the statute gives the Department no discretion to waive the three-year limit, the refund request was denied.

What this means for you

Individuals and couples who rely on a paid tax preparer

Hiring an accountant or preparer does not transfer legal responsibility for your return to them. You remain responsible for making sure a return is actually filed and that it is accurate, and if a preparer's mistake harms you, your recourse is a claim against that preparer -- not an excuse the Department will accept to reopen a missed refund deadline.

Taxpayers claiming a return was filed years ago but rejected

If you believe an earlier return was filed and rejected without your knowledge, keep proof: preparer correspondence, e-file confirmations or rejection notices, postal receipts, or similar records. In this case the Taxpayers' claim that a 2016 filing existed was not enough on its own -- without documentation, the Department went by its own records showing the return was first received in 2019.

Anyone filing late and expecting a refund

Virginia gives you three years from the original due date of a return to file a refund claim, whether the Department catches the overpayment on its own or you apply in writing. That three-year window under Va. Code § 58.1-499 D is applied strictly -- the statute gives the Department no discretion to extend it for hardship, preparer error, or lack of notice.

Common questions

Q: Did the Taxpayers get their refund?
A: No. The Department denied the refund because the 2015 return was not filed until October 2019, more than three years after the May 2, 2016 due date for that return.

Q: Does relying on an accountant or tax preparer excuse a late filing?
A: No. The ruling states that reliance on an accountant to prepare a return, while understandable, does not relieve the taxpayer of responsibility for ensuring the return is actually filed and accurate. If the preparer made an error, the taxpayer's recourse is against the preparer, not the Department.

Q: The Taxpayers said they filed in 2016 -- why didn't that count?
A: They were unable to provide documentation sufficient to prove the return had, in fact, been filed in 2016. The Department's own records showed the original 2015 return was not filed until October 2019.

Q: What is Virginia's deadline for claiming a refund?
A: Under Va. Code § 58.1-499 D, a refund claim (or the Department's own discovery of an overpayment) must occur within three years of the last day prescribed by law for timely filing the return. For the Taxpayers' 2015 return, due May 2, 2016, that deadline was May 2, 2019.

Q: Does the Department have any discretion to make an exception to the three-year deadline?
A: No. The ruling describes the statute's three-year limitations period as clear, with the Department having no discretion to extend it, regardless of the circumstances that caused the late filing.

Citations and references

Statutes:

• Va. Code § 58.1-1821 (application for correction of assessment)
• Va. Code § 58.1-499 A (Department must order refund of an overpayment)
• Va. Code § 58.1-499 D (three-year limitations period on refund claims)
• Va. Code § 58.1-341 A (individual income tax return due May 1 following the tax year)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-24

Original ruling text

February 23, 2021

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 assessment issued to * (the “Taxpayers”) for the taxable year ended December 31, 2015.

FACTS

The Taxpayers, a husband and wife, filed a 2015 Virginia income tax return in October 2019, reporting an overpayment of income tax and requesting a refund. The Department denied the refund because the return was filed beyond the refund period allowed by Virginia’s statute of limitations. The Taxpayers appeal the Department’s denial, contending that their 2015 return was first filed in 2016 and an error by their tax preparer resulted in the rejection of the timely filed return, for which they did not receive notice.

DETERMINATION

Virginia’s taxing system is largely based on the theory of self-assessment. A taxpayer computes his own income and tax, fills out his own return, files the return, and pays the tax indicated. Virginia has implemented a self-assessment system based on the federal system because it is less intrusive upon taxpayers, simpler, and less costly to administer. Consequently, taxpayers are responsible for the information provided on income tax returns.

Under the circumstances, a taxpayer’s reliance on an accountant to prepare income tax returns, while understandable, does not relieve the taxpayer of the responsibility for ensuring that the return is filed and the information reported on the return is accurate. Further, in a situation where a taxpayer relies on an accountant, lawyer, tax preparer or other tax professional and such professional provides inaccurate or erroneous advice that results in a liability, the taxpayer has recourse against the tax processional for the error.

As for the request for refund, Virginia Code § 58.1-499 A provides that in the case of any overpayment of any tax, whether by reason of excessive withholding, overestimated and overpaying estimated tax, or error on the part of the taxpayer, the Department shall order a refund of the overpayment. Virginia Code § 58.1-499 D specifies, however, in pertinent part that:

No refund under this section … shall be made… whether on discovery by the Department or on written application of the taxpayer, if such discovery is not made or such written application is not received within three years from the last day prescribed by law for the timely filing of the return … [Emphasis added.]

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. Based on Virginia statutes, the due date for the Taxpayers’ 2015 individual income tax return was May 2, 2016 (May 1, 2016 fell on a Sunday). As such, a return was required to be filed by May 2, 2019, in order to receive a refund for the 2015 taxable year.

The Taxpayers contend that they filed their 2015 return in 2016. The Taxpayers explain that the return was rejected due to an error by their tax preparer, and that they did not receive notice of the rejection. The Taxpayers’ have not provided documentation sufficient to prove that they did, in fact, file the return in 2016.

According to the Department’s records, the original 2015 Virginia income tax return was not filed until October 2019, well after the statute of limitations had expired on May 2 2019. The provisions of Virginia Code § 58.1-499 D are clear and do not provide the Department with any discretion in enforcing the three-year limitations period to apply for a refund. Accordingly, I must deny your request for a refund of the overpayment of individual income tax for the taxable year ended December 31, 2015.

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/3487.A