Could a taxpayer add an independent computational-error issue to a still-pending Virginia protective refund claim without amended returns?

Plain-English summary

Virginia accepted the added computational-error issue as a timely protective claim, but required amended returns to verify the refund amounts. The taxpayer had an existing protective claim tied to the Virginia Cellular litigation. Before that claim was finally resolved, it submitted a separate claim that its original telecommunications-minimum-tax computations were wrong.

Virginia said a protective claim can contain multiple issues. Only issues that actually depend on a pending court case are held without decision; independent issues are decided on their own merits. Because the computational-error issue was added before the original claim's final resolution, the Department treated it as timely.

No particular form was required. The April 2009 submission sufficiently identified the taxpayer, tax, periods, requested remedy, relevant assessment and payment information, alleged errors, grounds, and facts. The absence of amended corporate returns therefore did not invalidate the claim.

The Department still needed the amended 2004 through 2006 returns to verify the requested amounts. It gave the taxpayer 30 days to file them; otherwise, the refunds would be denied and the claim closed.

Common questions

Q: Did the new issue have to depend on the pending court case?
A: No. Virginia said an independent issue added to a pending protective claim could be decided on its merits.

Q: Were amended returns required to make the claim valid?
A: No. The submitted information was enough to establish a valid claim, but amended returns were still required to verify the refund amounts.

Q: Was the refund granted immediately?
A: No. Processing depended on the taxpayer filing the requested amended returns within 30 days.

Citations and references

• Va. Code §§ 58.1-1821 and 58.1-1824.
• 23 VAC 10-20-190(A) and (B); 23 VAC 10-20-165(D)(3)(d).
• Virginia Cellular, LLC v. Virginia Department of Taxation, 276 Va. 486, 666 S.E.2d 374 (2008).

Subject

Protective claim must include information to sufficiently file a claim when not depending on the outcome of a court case.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-179

Original ruling text

November 9, 2012

Re: § 58.1-1821 Application: Corporate Income Tax

Dear *:

This will reply to your letter in which you appeal the denial of a Virginia corporate income tax refund on behalf of your client, * (the "Taxpayer"), for the taxable years ended December 31, 2004 through 2006.

FACTS

The Taxpayer, a limited liability company, timely filed and paid telecommunications minimum tax for the taxable years at issue. In October 2008, the Taxpayer filed a protective claim for refund pursuant to the Virginia Supreme Court's decision in Virginia Cellular, LLC v. Virginia Department of Taxation , 276 Va. 486, 666 S.E.2d. 374 (2008). In Chapters 37 and 152 of the 2009 Acts of Assembly , the General Assembly enacted bills equalizing the treatment of corporate and non-corporate telecommunications entities for purposes of the telecommunications minimum tax. This legislation is effective for taxable years beginning on and after January 1, 2004. On May 4, 2009, the Department rejected the Taxpayer's refund claim with regard to the Virginia Cellular case because of the actions taken by the General Assembly.

On April 27, 2009, the Taxpayer filed an addendum to its protective claim requesting a refund for overpayment of telecommunications minimum tax based on computational errors made on the original returns. The Department denied the refunds because the submission in April 2009 did not include an amended return. In addition, the Department concluded that the filings for the 2004 and 2005 taxable years were submitted beyond the statute of limitations. The Department reasoned that because the issues included in the April 2009 claim were not addressed in the Virginia Cellular decision, they could not be treated as an addendum to the October 2008 protective claim.

The Taxpayer appeals the denial of the refund, contending that nothing in the statute prevents a taxpayer from amending or adding to an outstanding protective claim pending before the Department. In addition, the Taxpayer asserts that the protective claim statute does not require the filing of a complete return, and its submission would qualify as a return under federal income tax rules.

DETERMINATION

Pursuant to the authority granted the Tax Commissioner under Va. Code § 58.1-1824, a protective claim for refund can be held pending the outcome of another case before the courts or the claim may be decided based upon its merits pursuant to Va. Code § 58.1-1821.

Multiple Issues

Under Title 23 of the Virginia Administrative Code (VAC) 10-20-190 B, when the Department determines to hold a protective claim without decision because it involves issues that depend upon resolution of a pending court case, the issues included in such protective claim "will be strictly limited to those issues which actually depend upon resolution of a pending case." The regulation goes on to say that all other issues included in such a protective claim will be decided on the merits. Based on the regulation, a protective claim that includes multiple issues may be filed and the Department may decide to address some of the issues based on the merits, while holding others without decision pending the resolution of a court case.

In this case, the Taxpayer filed a protective claim, which the Department held without decision pending the final resolution of the Virginia Cellular case. Before the final resolution, the Taxpayer introduced another issue that was not dependent on the court case. Under Virginia's statute and regulation, the Department is obligated to address this issue on its merits. As such, the Taxpayer's protective claim regarding its computational errors was timely filed.

Required Information

According to Title 23 VAC 10-20-190 A, no specific form for a protective claim is required. However, the protective claim must include information that sufficiently identifies the taxpayer, type of tax, taxable period, remedy sought, date of assessment, and the date of payment. An appropriately executed statement setting forth each alleged error, grounds upon which taxpayer relies, and all facts relevant to taxpayer's contention must also be included. If applicable, the taxpayer must also show that the determination of the issues depend upon the outcome of another case pending in court.

I have thoroughly reviewed the information the Taxpayer submitted in April 2009 and must conclude that it included all of the information required under Title 23 VAC 10­20-190 A. As such, the fact that amended income tax returns were not filed does not cancel the validity of the April 2009 protective claim.

Additional Information

When the Department chooses to treat a protective claim as an appeal under Va. Code § 58.1-1821, the rules governing such appeals will apply. Title 23 VAC 10­-20-165 D 3 d authorizes the Department to request additional information from a taxpayer in order to facilitate a determination.

In this case, while the information provided by the Taxpayer is sufficient to support the validity of the refund claimed, the Department must also be able to verify the accuracy of the amounts claimed.

In accordance with this authority, the Department requests that the Taxpayer file the appropriate amended corporate income tax returns for the 2004 through 2006 taxable years. The requested returns should be sent to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O Box 27203 , Richmond, Virginia 23261-7203, Attn: *. The returns should be submitted within 30 days of the date of this letter. If the returns are not filed within the time provided, the refunds will be denied and the claim will be closed.

Upon receipt of the amended returns, the claim will be processed, reviewed and appropriate refunds will be issued. If, during processing, the refunds are denied in whole or in part, the Taxpayer will have 90 days from the date of such denial to appeal to the Tax Commissioner. If you have any questions regarding this determination, you may contact * at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4875070932.o