Could a late-filed 2000 Virginia overpayment be credited against an outstanding 1999 income-tax assessment?

Plain-English summary

Virginia refused to use the taxpayer's late 2000 overpayment as a refund or credit against the 1999 assessment. The same statutory refund deadline applied even though the taxpayer wanted a credit rather than cash.

The 2000 return was filed in November 2004, after the three-year period measured from its May 2001 due date. The overpayment was therefore unavailable.

The taxpayer's 2001 overpayment was applied against 1999, but the remaining 1999 assessment stayed outstanding. Virginia rejected the proposed multiyear netting based on fairness or accounting standards.

What this means for you

• An overpayment-credit request is subject to the refund limitation period.
• Withholding does not remain available indefinitely when the return is filed late.
• Each tax year keeps its own deadline before balances are applied across years.

Citations and references

• Va. Code § 58.1-499(A), (D).

Subject

Virginia resident who failed to file timely individual income tax returns

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 06-136

Original ruling text

October 30, 2006

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter concerning the Virginia individual income tax assessments issued to * (the "Taxpayer") for the 1999 through 2001 taxable years. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer was a Virginia resident who failed to file timely individual income tax returns for the 1999 through 2001 taxable years. An assessment was issued for the 1999 taxable year based on information provided by the Internal Revenue Service. The Taxpayer then filed individual income tax returns for the 2000 and 2001 taxable years in late 2004.

The Department disallowed the refund claimed on the 2000 taxable year return because the statute of limitations for issuing a refund or overpayment credit had expired for that taxable year. The refund claimed on the 2001 taxable year return was used as a payment toward the balance due computed on the 1999 income tax return. The balance of the 1999 taxable year assessment remains outstanding.

The Taxpayer contends that the method used by the Department to compute the balance due for the 1999 through 2001 taxable years is contrary to generally accepted accounting standards because it does not allow netting of the total overpayments, resulting from employer withholding, to offset the total underpayment for the years at issue. The Taxpayer asserts that, in the interest of fairness, Virginia should permit the 2000 overpayment to be applied against the 1999 assessment.

DETERMINATION

Virginia Code § 58.1-499 A provides that in the case of any overpayment of any tax, whether by reason of excessive withholding, overestimating and overpaying estimated tax, or error on the part of the taxpayer, the Tax Commissioner 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 . . . .

Although the Taxpayer has not requested a refund of any money, but has requested that any overpayment of tax for the 2000 taxable year be applied against the assessment for 1999, the laws regarding refunds still apply. As stated above, Va. Code § 58.1-499 requires that an application for refund must be received within three years from the last day prescribed by law for the timely filing of the return. Because the due date for the 2000 individual income tax return was May 1, 2001, the 2000 return was required to be filed by May 3, 2004. Under Va. Code § 58.1-499, a refund or overpayment credit for the 2000 taxable year cannot be granted because the original 2000 individual income tax return was not filed until November 2004.

Based on the applicable law cited and the information presented, the Department was correct to apply the overpayment from the 2001 taxable year return against the 1999 taxable year assessment and to disallow the 2000 taxable year overpayment as a refund or credit against the outstanding assessment. The assessment for the 1999 taxable year, therefore, remains outstanding.

Payment of the outstanding assessment, as shown on the enclosed schedule, should be sent to: Virginia Department of Taxation, Office of Policy and Administration,Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23261-7203,Attention: *. No additional interest will accrue provided the outstanding balance is paid within 30 days from the date of this letter. Please attach a copy of this letter and the enclosed Schedule of Assessments when remitting your payment.

The Code of Virginia section cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this response, you may contact * at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/56992E