If the U.S. Tax Court later proves the IRS adjustment wrong, can Virginia still refund the tax it assessed on that adjustment, or do its filing deadlines control?

Plain-English summary

This is a hard case with a clear lesson: being right on the merits doesn't save you if you miss the deadline. The IRS adjusted the taxpayers' 2018 federal return. Because Virginia had no amended state return reporting that federal change, the Department issued an assessment in March 2022, and in October 2022 it collected the bill by applying part of the couple's 2021 Virginia refund. The taxpayers then took the IRS to U.S. Tax Court and won — the court found the IRS adjustment was incorrect. Armed with that victory, in March 2025 they asked Virginia to abate the assessment and refund the money. The Commissioner was sympathetic but held that every deadline had already run. The determination walks through three separate limitations clocks:

1. The 90-day appeal deadline (§ 58.1-1821)

You have 90 days from the date of an assessment to apply to the Tax Commissioner for relief (23 VAC 10-20-165), and an assessment is deemed made when the notice is mailed to your last known address (§ 58.1-1820). The assessment went out March 15, 2022; the application for correction wasn't filed until June 2025 — years past the 90 days.

2. The three-year protective claim (§ 58.1-1824)

A taxpayer who has paid an assessment can preserve judicial remedies by filing a protective claim — but both the payment and the claim must occur within three years of the assessment, and the tax must be paid in full first (23 VAC 10-20-190 A 1). The last day here was March 15, 2025 (three years after the assessment). The taxpayers' first refund letter was dated March 22 and postmarked March 26, 2025 — just missing it.

3. The amended-return exceptions (§ 58.1-1823)

An amended return claiming a refund is normally due within three years of the return's due date, but two special exceptions were in play — and both had also expired:

• One year from a final federal determination (§ 58.1-1823 (ii)). This is the window that fit the taxpayers' situation. A U.S. Tax Court decision, if not appealed, is the "final determination" date (23 VAC 10-20-180 B 5). The Tax Court decided in December 2022, so the amended return was due by December 2023.
• Two years from payment of the assessment (§ 58.1-1823 (iv)). The assessment was paid (by offset) in October 2022, so this window closed in October 2024.

Because the refund request didn't arrive until March 2025, all three doors were shut. The assessment stands; but since it was already paid in full, the taxpayers owe nothing further.

What this means for you

If the IRS changes your federal return

Report the federal change to Virginia promptly on an amended state return. If you're fighting the IRS in Tax Court, don't wait for the dust to settle to think about Virginia — the state clock that helps you (§ 58.1-1823 (ii)) gives just one year from the final federal determination, which is typically the date the Tax Court decision becomes final. Calendar that date the moment you win.

If you've paid an assessment you dispute

Move fast and know which clock you're on. To appeal, you have 90 days from the assessment. To keep a refund alive after paying, file a protective claim within three years of the assessment (and pay in full first). And note the payment can happen by the Department offsetting a later-year refund — that still starts the two-year-from-payment window under § 58.1-1823 (iv).

Tax professionals

A clean one-document map of Virginia's overlapping deadlines: the 90-day appeal (§ 58.1-1821), the three-year protective claim (§ 58.1-1824), and the two § 58.1-1823 amended-return exceptions (one year from final federal determination; two years from payment). The Commissioner has no discretion to waive them, even where the taxpayer prevailed against the IRS. Also note the finality rule of 23 VAC 10-20-180 B 5 for Tax Court decisions.

Common questions

Q: I won against the IRS in Tax Court. Doesn't Virginia have to refund the tax it based on the IRS adjustment?
A: Not if the state deadlines have passed. Virginia's refund and appeal windows run on their own clocks, and the Commissioner has no discretion to waive them — even when the underlying IRS adjustment turns out to be wrong.

Q: Which deadline should these taxpayers have used?
A: The one-year window from the final federal determination (§ 58.1-1823 (ii)). Because their U.S. Tax Court decision became final in December 2022, they had until about December 2023 to file an amended Virginia return claiming the refund.

Q: The Department took my refund from another year to pay the bill. Does that count as paying the assessment?
A: Yes. Here the Department applied part of a later-year overpayment to satisfy the assessment, and that payment started the two-year-from-payment refund window under § 58.1-1823 (iv).

Q: Does paying in full let me file a protective claim any time?
A: No. A protective claim under § 58.1-1824 must be filed — and the tax paid — within three years of the assessment date.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-1821 — 90-day deadline to apply to the Tax Commissioner for relief from an assessment
• Va. Code § 58.1-1820 — an assessment is deemed made when notice is mailed to the taxpayer's last known address
• Va. Code § 58.1-1824 — protective claim for refund (file and pay within three years of assessment)
• Va. Code § 58.1-1823 — amended-return refund deadlines, including the one-year federal-change exception (ii) and the two-year-from-payment exception (iv)
• 23 VAC 10-20-165 — a complete appeal must be filed within 90 days of the assessment date
• 23 VAC 10-20-190 A 1 — all tax, penalty, and interest must be paid in full before a protective claim
• 23 VAC 10-20-180 B 5 — a final U.S. Tax Court decision, if not appealed, is the federal "final determination" date

Prior documents (described here rather than linked): Department determinations P.D. 86-224 and P.D. 24-10 (limiting protective claims to cases where both payment and filing occur within three years of assessment).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 26-1

Original ruling text

February 4, 2026

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you seek correction of the individual income tax assessment issued to you (the “Taxpayers”) for the taxable year ended December 31, 2018.

FACTS

The Internal Revenue Service (IRS) notified the Department that it had adjusted the Taxpayers’ 2018 federal income tax return. Because the Department had no record of having received an amended Virginia income tax return to report the federal change, an assessment was issued in March 2022 for additional tax due. In October 2022, the Department applied a portion of the Taxpayers’ Virginia income tax overpayment for the 2021 taxable year in complete satisfaction of the 2018 tax liability. In March 2025, the Taxpayers requested that the Department abate the assessment and issue a refund because the United States Tax Court had determined that the IRS adjustment was incorrect. The Department denied the refund request on the basis that the request was not received within one year of the final determination reversing the IRS adjustment. The Taxpayers applied for correction.

DETERMINATION

The history of this case raises several different issues with respect to statutes of limitations. Each of these limitations periods will be addressed in turn.

Deadlines for Filing Appeals

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 Tax Commissioner. Such application shall be in the form prescribed by the Department and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer’s contention.” Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-20-165, a complete appeal must be filed with the Department within 90 days from the date of assessment. In addition, Virginia Code § 58.1-1820 provides that assessments made by the Department are deemed to be made when a written notice of assessment is mailed to the taxpayer’s last known address.

The assessment for the 2018 taxable year was issued on March 15, 2022. The Taxpayers filed the present application for correction with the Department in June 2025, well after the 90 day statute of limitations had expired.

Protective Claims

Virginia Code § 58.1-1824 provides that “[a]ny person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing a claim for refund with the Tax Commissioner . . . within three years of the date such tax was assessed.” Virginia Code § 58.1-1824, therefore, expressly limits the right to file a protective claim to cases in which both the filing of the claim and the payment of the assessment occurred within three years of the assessment. See Public Document (P.D.) 86-224 (11/3/1986) and P.D. 24-10 (2/28/2024). In addition, all assessed taxes, penalties, and accrued interest for the year or years subject to the request must be paid in full before a taxpayer may file a protective claim. See 23 VAC 10-20-190 A 1.

In this case, the last day for filing a protective claim for refund was March 15, 2025, three years after the assessment was issued for the 2018 taxable year. The Taxpayers first requested a refund by letter dated March 22, 2025, bearing a postmark date of March 26, 2025. As such, the Taxpayers could not apply for correction of the assessment as a protective claim under Virginia Code § 58.1-1824.

Statute of Limitations for Amended Returns

The general rule is that an amended return must be filed within three years of the original or extended due date, as applicable, to claim a refund. See Virginia Code § 58.1-1823. This code section includes a number of exceptions to the general rule when specific circumstances are present. In this case, two of those circumstances are potentially applicable.

First, under Virginia Code § 58.1-1823 (ii), a taxpayer may file an amended return within one year from the final determination of any change or correction in the liability of the taxpayer for any federal tax upon which the state tax is based, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such federal change or correction. The IRS issued a final determination in November 2021, and the United States Tax Court decision was issued in December 2022. In addition, it does not appear that any further litigation occurred in the case. For purposes of Virginia Code § 58.1-1823, the date a decision by the United States Tax Court becomes final is considered the final determination date, provided the case is not appealed further. See Title 23 of the Virginia Administrative Code (VAC) 10-20-180 B 5. Accordingly, the last day to file an amended return based on the federal correction would have been in December 2023.

Alternatively, under Virginia Code § 58.1-1823 (iv), a taxpayer may file an amended return within two years from the payment of an assessment, provided the amended return raises issues related solely to such assessment and that the refund does not exceed the amount of such payment. The assessment at issue was paid in October 2022. Accordingly, the last day to file an amended return would have been in October 2024.

The Taxpayers first requested a refund in March 2025. As such, the Department is unable to treat the refund request as a timely filed amended return under either Virginia Code § 58.1-1823 (ii) or § 58.1-1823 (iv).

CONCLUSION

As discussed above, the Department is limited by statutory periods during which a taxpayer can pursue an administrative remedy with the agency. Based on the facts presented, the Department finds no basis to abate the assessment. In addition, the statutory period during which the Taxpayers could have requested a refund of the tax paid has expired. Accordingly, although the Department empathizes with the Taxpayers’ situation, the Department cannot abate the assessment or grant the Taxpayers’ refund request. Because the assessment has already been paid in full, no further action from the Taxpayers is required.

The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public document 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 and Legal Affairs, Tax Adjudication and Resolution Division, at or **@tax.virginia.gov.

Sincerely,

Kristin L. Collins
Tax Commissioner
Commonwealth of Virginia

AR/5251.T

Related Documents

86-224

24-10