Was a refund a Department error when the electronic return claimed an out-of-state credit that did not appear on the taxpayers' printed copy?

Subject

Electronic filing data supported recovery of refund despite different printed copy

Plain-English summary

Virginia upheld recovery of a 2006 refund because the electronic return transmitted to the Department included an out-of-state tax credit. The couple's printed copy showed no such claim, but Virginia found that the printout might not accurately reflect the electronic file.

The transmitted return included the credit, and its W-2 data showed North Carolina income-tax withholding for the wife. Virginia concluded that the credit was generated either by information the taxpayers entered or by a bug in their tax software.

Section 58.1-1812(B) defined the special erroneous-refund category as a refund caused solely by a Department error. Here, the Department processed the return as transmitted. The refund therefore did not result solely from its error, and the recovery assessment remained due.

What this means for you

• The electronically transmitted file can control over a later printed software copy.
• Keep the actual filed-data record, acceptance confirmation, and supporting schedules.
• Review state-credit and withholding fields before transmission.
• A refund is not treated as solely a Department error when taxpayer input or software caused the filed claim.

Common questions

What did the electronic return contain?

An out-of-state credit claim and North Carolina withholding information.

Why did the printed copy not control?

Virginia said it might not accurately show what the software transmitted.

Was the recovery assessment removed?

No.

Citations and references

• Va. Code § 58.1-1812(B).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-57

Original ruling text

May 7, 2010

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, 2006.

FACTS

The Taxpayers, a husband and a wife, electronically filed their Virginia income tax return for the 2006 taxable year reporting an overpayment. A portion of the overpayment was applied against a claim by a Virginia locality for an outstanding assessment. The remainder of the refund was issued to the Taxpayers.

Under review, the Department disallowed a credit for taxes paid to other states claimed on the 2006 return because the Taxpayers did not provide a copy of the other state's tax return. An assessment was issued. The Taxpayers have filed an appeal, contending they never claimed an out-of-state tax credit on their original 2006 return.

DETERMINATION

Regardless of whether the Taxpayers intended to claim a credit for taxes paid other states or not, the 2006 return was processed as if the Taxpayers had claimed the credit. The resulting overpayment was split between an outstanding assessment from a Virginia locality and the Taxpayers. The only issue is whether the 2006 overpayment is subject to the treatment of erroneous refunds under Va. Code § 58.1-1812.

Under Va. Code § 58.1-1812 B, the Department may not access penalty or interest on an assessment for the recovery of an erroneous refund. This statute defines an "erroneous refund" as a refund of tax issued to a taxpayer resulting solely from an error by the Department resulting in a refund to which the taxpayer is not entitled.

In this case, the Taxpayers' 2006 return was electronically filed. A review of the Department's records shows that the electronic transmission, copy enclosed, included a claim for an out-of-state tax credit. Further, the W-2 information included with the electronic filing indicates that the wife had income tax withheld for the state of North Carolina. Thus, the out-of-state credit claim was either generated by information entered by the Taxpayers or the result of a bug in the software used by the Taxpayers.

The Taxpayers have provided a copy of their individual income tax return showing that no credit for taxes paid other states was claimed. They assert that the Department processed the return incorrectly, resulting in the erroneous refund. Although this copy was produced from the same software used to produce the electronically filed return, it is a printed copy for tax filing purposes and may not accurately reflect what the Taxpayers' filed electronically with the Department.

Based on the evidence, the: Department processed the return as electronically filed by the Taxpayers and the refund issued to the Taxpayers was not made as a result of an error made by the Department. Accordingly, the assessment is upheld and is now due and payable. Payment of the remaining balance due, as shown on the enclosed schedule, should be made to: Virginia Department of Taxation, 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.

The Code of Virginia sections cited 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 determination, you may contact * in the Office of Tax Policy,

Appeals and Rulings, at *.

Sincerely,

Janie E. Bowen

Tax Commissioner

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