The Department didn't contact me for 13 years and then suddenly filed a wage lien on decades-old tax debt -- is it too late for them to collect, and did interest keep piling up the whole time?

Plain-English summary

A taxpayer filed Virginia returns for 1997 and 1998 but didn't pay, and didn't file at all for 1999. The Department assessed tax for all three years and began collection, issuing a bank lien in September 2011 -- then took no further action until a wage lien in June 2024, nearly 13 years later. The taxpayer argued the debt was no longer collectible under the modern 20-year (really, current 7-year) statute of limitations, and alternatively that penalty and interest should have stopped accruing given the Department's long silence. The Department agreed with the second argument, not the first.

Collectibility: the assessments survive, because the OLD rule applies. Virginia's collection statute of limitations has changed repeatedly: no limit at all before 1990; a 20-year limit to institute collection starting in 1990; cut to 10 years in 2010; cut again to 7 years in 2012. The CURRENT 7-year rule (Va. Code § 58.1-1802.1 A) applies only to assessments made on or after July 1, 2016 -- these 1990s-vintage assessments don't qualify. Since they predate 2010, the 20-year rule controls, and the Department's longstanding policy (P.D. 14-177, P.D. 23-27 -- also discussed in the already-enriched P.D. 25-50) is that once collection action is initiated within the applicable window, collection may continue until the debt is paid, no matter how long that takes. Department records showed consolidated bill notices, the September 2011 bank lien, and Treasury Offset Program notifications -- all collection actions, all within the 20-year period -- so the assessments remained legally collectible even after 13 years of subsequent silence.

But penalty and interest are a separate question, with a real limit. For assessments issued before July 1, 2012 (like these), Va. Code § 58.1-1802.1 C provided that if the Department has no contact with the delinquent taxpayer for seven years AND no memorandum of lien has been filed in a jurisdiction where the taxpayer owns real estate, penalty and interest stop accruing on the outstanding debt. (The current version of this rule shortens the window to six years.) Mailing a notice to the taxpayer's last known address counts as "contact." Here, the Department's own records showed its last contact was the September 13, 2011 lien notice -- and it never filed a real estate lien against the taxpayer anywhere. With no further contact until the June 2024 wage lien, more than seven years of silence had elapsed.

The fix. Because the seven-year no-contact clock ran out on September 13, 2018, the Department adjusted the assessments to remove all penalty and interest that accrued after that date -- while the underlying tax principal (and pre-2018 penalty/interest) remained due. An updated bill followed, with 30 days to pay before further collection action.

What this means for you

Anyone with old Virginia tax debt who suddenly hears from the Department after years of silence

Don't assume old debt has expired just because you weren't contacted for a long time -- Virginia's collection statute of limitations depends on WHEN the assessment was made, and pre-2016 assessments can carry a much longer (10- or 20-year) window than the current 7-year rule, with collection continuing indefinitely once properly initiated within that window.

Anyone whose Department contact gap is 7+ years (6+ years under current law)

Check Va. Code § 58.1-1802.1 C. If there's been no contact for the statutory period and no real estate lien filed against you, penalty and interest should stop accruing from that point forward -- even if the underlying debt remains collectible. This is a genuine, calculable dollar concession worth requesting.

Tax professionals reconstructing an old collection history

Pull the Department's own collection-action records (bill notices, liens, TOP offsets) rather than relying on the client's recollection -- as in the companion ruling P.D. 25-50, the Department's records of notices/liens/offsets, not the taxpayer's memory of receiving nothing, are what settles both the limitations and no-contact questions.

Common questions

Q: My decades-old Virginia tax debt just resurfaced after years of silence -- is it too late for the Department to collect?
A: Not necessarily. If the assessment predates July 1, 2016, an older (10- or 20-year) limitations period likely applies, and collection can continue indefinitely once initiated within that window -- regardless of a later gap in contact.

Q: Does a long gap in Department contact at least stop interest and penalty from piling up?
A: Possibly. If there's been no contact for seven years (six years under the current rule) and no real estate lien filed against you, Va. Code § 58.1-1802.1 C requires interest and penalty to stop accruing from that point -- as happened here.

Q: What counts as "contact" from the Department for this purpose?
A: Mailing a notice to your last known address counts, per the statute -- you don't need to have actually received or responded to it.

Citations and references

Statutes:

• Va. Code § 58.1-1802.1 A -- current 7-year collection statute of limitations; applies only to assessments made on or after July 1, 2016
• Va. Code § 58.1-1802.1 C -- penalty and interest stop accruing if the Department has no contact with a delinquent taxpayer for a set period (7 years for pre-July 2012 assessments, now 6 years) and no memorandum of lien is filed where the taxpayer owns real estate

Authorities the Department relied on (described here, not linked): P.D. 14-177 (10/14/2014) and P.D. 23-27 (3/15/2023) (once collection action is initiated within the applicable limitations period, collection may continue until the assessment is satisfied) -- the same collection-statute-of-limitations history discussed in the already-enriched P.D. 25-50, though this ruling adds the distinct § 58.1-1802.1 C no-contact penalty/interest-tolling holding not addressed there.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-108

Original ruling text

October 23, 2024

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you dispute the collectibility of the individual income tax assessments issued to your client, * (the “Taxpayer”), for the taxable years ended December 31, 1997, 1998, and 1999.

FACTS

The Taxpayer filed Virginia resident individual income tax returns for the 1997 and 1998 taxable years but did not pay the tax due. In addition, the Taxpayer failed to file a Virginia income tax return for the 1999 taxable year. As a result, the Department issued assessments. When balances remained due on them, the Department began collection actions.

After the Department issued a lien against the Taxpayer’s bank account in September 2011, no further collection actions were taken until June 2024 when the Department issued a lien against the Taxpayer’s wages. The Taxpayer then filed an application for correction, asserting that the assessments were no longer collectible because the 20-year statute of limitations had expired. Alternatively, the Taxpayer argues that, under Virginia Code § 58.1-1802.1 C, no penalty or interest should have accrued for all or a portion of the period the assessments were outstanding because the Department did not make any contact with him for more than seven years or file a lien in any jurisdiction in which he owned real estate.

ANALYSIS

Collection Statute of Limitations

Although Virginia Code § 58.1-1802.1 currently limits the Department’s collection actions to seven years from the date of assessment, even if collection action has been initiated within the seven-year period, the statute of limitations has been amended several times due to legislative action. The current statute of limitations applies only to assessments made on or after July 1, 2016. See Virginia Code § 58.1-1802.1 A. Because the assessments at issue were made prior to that date, the statute as currently enacted does not apply to the Taxpayer’s assessments.

Until 1990, Virginia law provided no limitation on the Department’s ability to collect assessments. In 1990, legislation was passed that required the Department to institute collection action within 20 years from the date of the assessment. This period of limitations was reduced from 20 years to 10 years from the date of assessment in 2010 and from 10 years to 7 years in 2012.

For assessments made prior to the 2016 amendments, it has been the Department’s longstanding policy that, as long as any collection action was initiated or made before the end of the period of limitations, collection could continue until the assessment was satisfied. A collection effort with regard to a taxpayer commences when it levies an assessment and encompasses all means of collecting taxes enumerated under Virginia statutes. In general, some form of collection action is usually taken early within the limitations period. See Public Document (P.D.) 14-177 (10/14/2014) and P.D. 23-27 (3/15/2023).

In this case, the 20-year statute of limitations applies because the assessments were issued prior to 2010. The Taxpayer argues that the statute has expired because he never received any collection notices until he received a wage lien notice in June 2024. According to the Department’s records, however, from December 1998 through September 2011, the Department issued various consolidated bill notices, a bank lien, and Treasury Offset Program (TOP) notifications concerning the assessments at issue, all of which the Department considers collection actions.

Penalty and Interest

For assessments issued before July 1, 2012, Virginia Code § 58.1-1802.1 C provided:

If the Department of Taxation has no contact with the delinquent taxpayer for a period of seven years and no memorandum of lien has been appropriately filed in a jurisdiction in which such taxpayer owns real estate, interest and penalty shall no longer be added to the delinquent tax liability. The mailing of notices by the Department to the taxpayer’s last known address shall constitute contact with the taxpayer.

The current version of this provision is the same, except that the period has been changed to six years. In this case, the Department’s last contact with the Taxpayer before the June 2024 notice was a lien notice dated September 13, 2011. In addition, the Department’s records do not indicate that a memorandum of lien was ever filed in any jurisdiction in which the Taxpayer owned real estate.

DETERMINATION

As discussed above, the Department initiated collection actions with respect to the assessments at issue within the 20-year statute of limitations period. As such, the Department considers the assessments to remain collectible until paid in full. Pursuant to Virginia Code § 58.1-1802.1 C, however, penalties and interest should not have accrued after September 13, 2018.

Based on the foregoing, the Department will adjust the assessments to remove any penalties and interest that accrued after September 13, 2018. The Taxpayer will then receive an updated bill. The Taxpayer should remit the balance due within 30 days of the bill date to avoid further collection actions.

The Code of Virginia sections cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at (804) or **@tax.virginia.gov.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/5011.Q

Related Documents

14-177

23-27