Did a W-2, an exchange agreement, and an unsigned letter faxed by the deadline count as a timely Virginia refund return?

Subject

Documents submitted did not constitute a timely filed income tax return

Plain-English summary

A taxpayer's May 1, 2008 fax did not count as a timely filed 2004 Virginia income-tax return or refund claim, and the completed return filed in January 2009 was too late. The taxpayer had suffered heart failure and major surgeries and argued that severe disability prevented timely filing.

Federal law can suspend a refund deadline for qualifying financial disability, but Virginia had no comparable provision. Virginia instead required a person unable to file because of disability to have a fiduciary or authorized agent file the return.

The refund period for the 2004 return expired May 1, 2008. On that date, the taxpayer faxed a letter, a W-2, and an I.R.C. § 1031 exchange agreement. The documents did not state a refund amount, did not include his signature, did not disclose the exchange amount, omitted deduction information, and were not the return prescribed by the Department.

Those papers gave the Department enough information to abate an earlier assessment, but they did not satisfy the requirements for a timely refund return. The Tax Commissioner therefore denied the 2004 refund and stated that the statutory deadline could not be waived.

What this means for you

• Giving an auditor partial tax information is not the same as filing a valid return or refund claim.
• A signed return in the Department's prescribed form and the required supporting information matter.
• Virginia's ruling did not import the federal financial-disability tolling rule into state law.
• Abatement of an assessment does not automatically establish entitlement to a refund.

Common questions

Why was May 1, 2008 important?

It was the last day of Virginia's three-year period for claiming a refund for the 2004 tax year, absent an extension.

Why did the fax not qualify as a return?

It was unsigned, did not request a stated refund, lacked a prescribed return, and omitted information needed to compute liability and deductions.

Did the Department acknowledge the taxpayer's disability?

Yes, but it found no Virginia statute allowing the limitation period to be suspended on that basis.

Citations and references

• Va. Code §§ 58.1-202(7), 58.1-341(A) and (F), and 58.1-499(A) and (D).
• 23 VAC 10-110-240.
• I.R.C. § 6511(h); IRS Revenue Procedure 99-21.
• United States v. Porth, 426 F.2d 519 (10th Cir. 1970).
• United States v. Long, 618 F.2d 74 (9th Cir. 1980).
• United States v. Grabinski, 727 F.2d 681 (8th Cir. 1984).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-204

Original ruling text

September 2, 2010

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you appeal the Department's denial of a refund for individual income tax paid by * (the "Taxpayer") for the taxable year ended December 31, 2004. I apologize for the delay in the Department's response.

FACTS

The Taxpayer did not timely file a 2004 Virginia individual income tax return. In August 2007, the Department issued an assessment for the 2004 taxable year. On May 1, 2008, the Taxpayer submitted several documents concerning his 2004 income tax liability, including a federal wage and tax statement (Form W-2). Based on this information, the assessment was abated, but no refund was issued. In January 2009, Taxpayer filed a 2004 Virginia individual income tax return claiming a refund. The Department denied the refund because the statute of limitations had expired.

The Taxpayer appeals the Department's denial of his refund claim for the 2004 taxable year. The Taxpayer asserts that he was severely disabled following heart failure and major surgeries, and he was unable to prepare and file his Virginia return. He cites federal law and Internal Revenue Service (IRS) policy that suspends the statute of limitations for a physical impairment. The Taxpayer further claims he provided additional information concerning his liability by May 1, 2008, to the Department's auditor, and the Department had sufficient information to compute his refund.

DETERMINATION

Statute of Limitations

The Taxpayer asserts that he was unable to timely comply with Virginia's statutory filing requirements due to a disability. Internal Revenue Code (IRC) § 6511 (h) suspends the statute of limitations on filing refund claims when a taxpayer is physically or mentally unable to handle his financial affairs due to severe disability. Under IRS Rev. Proc.99-21, a refund claim for a "financial disability" must include a statement of medical impairment by a certified physician, and a statement certifying no other person was authorized to act on taxpayer's behalf during the period of disability. Virginia law does not contain a similar provision.

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:

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. Further, Va. Code § 58.1-341 F provides that an individual who is unable to make a return because of a disability has the responsibility, of having such return filed by a fiduciary or duly authorized agent. Thus, Virginia law addresses the requirements of filing returns for taxpayers who have disabilities. Title 58.1 of the Code of Virginia does not provide for the suspension of the statute of limitations for an individual who is mentally or physically disabled.

In order to receive a refund, the Taxpayer's original return for the 2004 taxable year was required to be filed by May 1, 2008 (absent an extension). The return at issue was filed in January 2009, well after the expiration of the statute of limitations.

Tax Return

The Taxpayer asserts that he provided additional information to the Department in time for a determination to be made that he was entitled to a refund for the 2004 taxable year. The concept of what constitutes a "return" for federal tax purposes, and its interplay with the statute of limitations, has been repeatedly adjudicated since the imposition of the federal income tax. Generally, a "return" is considered valid if it contains enough information to permit the Internal Revenue Service to compute a taxpayer's liability. See U.S. v Arthur J. Porth , 25 AFTR2d 70-961, 426 F2d 519 (1970); U.S. v. Ronald M. Long , 46 AFTR;2d 80-5004, 618 F2d 74 (1980); and U.S. v. John M. Grabinski, 53 AFTR2d 84-710, 727 F2d 681 (1984).

Virginia Code § 58.1-202 7 grants the Tax Commissioner the authority to prescribe "the forms of books, schedules and blanks to be used in the assessment and collection of state taxes." Under Title 23 of the Virginia Administrative Code (VAC) 10­110-240, every individual required to file a return for a taxable year must complete a return as prescribed by the Department and provide the following information and documentation:

social security number

wage and tax statements

signature

federal income tax form or schedule verifying the computation of Virginia tax liability

a copy of the return(s) filed with the state(s) for which an out-of-state tax credit is claimed

The Taxpayer's letter and accompanying information was faxed to the Department on May 1, 2008. While the letter indicates that the Taxpayer believes he should be receiving a refund, there was no request for a refund or identification of an amount owed to the Taxpayer. Further, although the Taxpayer included his social security number, his signature did not appear on the fax cover sheet or the attached letter.

The information accompanying the letter was a federal wage and tax statement and a copy of an IRC § 1031 exchange agreement. The agreement did not disclose the amount of the IRC § 1031 exchange. In addition, no information or documentation was provided concerning any deductions to which the Taxpayer may have been entitled. Because the information was not provided in the form prescribed by the Department, the Taxpayer's documents submitted on May 1, 2008 did not constitute a timely filed income tax return for purposes of claiming a refund.

While I empathize with your situation, I am bound by the clear requirements under the law. The Tax Commissioner is not empowered to waive the statute of limitations period in this situation. Accordingly, I must deny the Taxpayer's request for a refund for the 2004 taxable year.

The Code of Virginia sections cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.virginia.gov. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Linda D. Foster

Deputy Tax Commissioner

AR/1-3628658254.o