Did a timely extension payment preserve a 2006 Virginia refund when the taxpayer did not prove the return was filed within the extension period?

Plain-English summary

The extension failed because the taxpayer did not prove that the original 2006 return was filed within the extended period. He made an extension payment in April 2007 and claimed to have filed the return in October 2007, but Virginia had no record or objective evidence of that filing.

An extension required both payment of the properly estimated balance by the original due date and filing the return by the extended November 1, 2007 deadline. Missing the extended filing deadline invalidated the election and returned the refund calculation to the original May 1, 2007 due date.

Virginia treated the return received on August 28, 2010 as the original and denied both the requested refund and the request to credit the overpayment to 2007. An overpayment credit remained subject to the same refund limitation rules.

The official text contains an internal date inconsistency: it states the period was three years from the May 1, 2007 original due date but later labels the expiration as May 1, 2008. The operative conclusion remains that the August 2010 filing was late.

Common questions

Q: Was making the extension payment enough?
A: No. The original return also had to be filed within the six-month extension.

Q: Could the taxpayer avoid the refund deadline by carrying the overpayment to 2007?
A: No. Virginia applied the refund limitation rules to the requested credit as well.

Citations and references

• Va. Code §§ 58.1-341, 58.1-344, and 58.1-499(A), (D).
• 23 VAC 10-20-160(D)(4).
• Virginia Public Documents 06-136 (October 30, 2006) and 10-238 (September 30, 2010).

Subject

Extension only granted conditionally all the taxes must be paid by the original due date

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-84

Original ruling text

May 21, 2012

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you appeal the Department's denial of the application of an overpayment credit for individual income tax paid by * (the "Taxpayer") for the taxable year ended December 31, 2006. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer made an extension payment for the 2006 taxable year in April 2007. The 2006 individual income tax return was filed on August 28, 2010. The return reported an overpayment, a portion of which the Taxpayer requested be credited to the 2007 taxable year with a balance to be refunded.

The Department disallowed the taxable year 2006 refund and the overpayment credit toward the 2007 return because the statute of limitations for claiming a refund had expired. The Taxpayer filed an appeal, contending the statutory period for issuance of a refund for the 2006 taxable year was extended to November 1, 2010.

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:

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.]

Although the Taxpayer requested that any overpayment of tax for the 2006 taxable year be applied against any income tax liability for the 2007 taxable year instead of a refund, the laws regarding refunds still apply. See Public Document (P.D.) 06-136 (10/30/2006).

Under Va. Code § 58.1-344, taxpayers are allowed to elect to take a six month extension to file their returns. In order to elect an extension, a taxpayer must (i) file the return within the extended period, and (ii) on or before the original due date for the filing of the return, pay the full amount properly estimated as the balance of the tax due for the taxable year. See P.D. 10-238 (9/30/2010).

The Taxpayer claims that he filed his original 2006 individual income tax return in October 2007. The Department, however, has no record of receiving a 2006 return until August 2010. Because the Taxpayer has provided no objective evidence that he filed his 2006 return prior to August 2010, the Department must conclude that this is the Taxpayer's original return.

Further, the Taxpayer asserts that, by making a timely extension payment, he satisfied the election for extending the time to file an individual income tax return for the 2006 taxable year. He also cites Title 23 Virginia Administrative Code (VAC) 10-20-­160 D 4 to support his argument that the last day prescribed by law for the timely filing of the 2006 taxable year return was November 1, 2007. Under this regulation, "a return filed or tax paid before the last day prescribed by law for the filing or payment thereof, including extensions granted pursuant to law, shall be deemed to be filed or paid on such last day."

As noted above, however, an extension is only granted conditionally when all the taxes are paid by the original due date. The election is only considered to be complete when a taxpayer files the return within the extension period. This is because Va. Code § 58.1-344 A permits an individual to elect "an extension of time within which to file the income tax return . . . ." Failure to file an original return within an extension period constitutes a breach of principal on which extensions are granted. In such circumstances, the extension is negated and the last day allowed for the timely filing of the return reverts to the original due date.

In this case, the Taxpayer's extension of time to file his 2006 return became invalid when the original return was not filed by the extended due date, November 1, 2007. As such, the Taxpayer had three years from the original due date, May 1, 2007 in which to file a timely request to credit an overpayment of tax for the 2006 taxable year to the 2007 taxable year. The Taxpayer filed his original 2006 Virginia income tax return in August 2010. The statute of limitations for filing a return crediting an overpayment for the 2006 taxable year expired three years after the last day prescribed by law to timely file a return as prescribed under Va. Code § 58.1-341, i.e. , May 1, 2008. Because the Taxpayer's return was filed after that date, I must deny the request for a credit to 2007 estimated payments and the refund for the 2006 taxable year.

The Code of Virginia sections, regulation and public documents 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 about this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4697116183.E