Was a nonprofit's amended 2008 return timely after Virginia collected part of its corporate tax assessment?

Plain-English summary

Virginia treated the nonprofit's amended 2008 return as timely because it was filed within two years after the Department collected part of the assessment. The organization had reported unrelated business taxable income without applying a net operating loss deduction. Its ordinary three-year amendment period had already expired.

The Department had withheld part of a refund owed to a Virginia state university and applied that amount to the nonprofit's assessment under the Virginia Debt Collection Act. Virginia treated that collection as a payment for the special two-year rule in Va. Code § 58.1-1823 A (iv).

The amended return was filed shortly after that payment, addressed only the omitted deduction that created the assessment, and did not seek more than the amount paid. The Department therefore agreed to process it and, as appropriate, abate the assessment and issue a refund with applicable interest.

What this means for you

• The ordinary amended-return deadline is not always the final limitations rule.
• A collection action applied to an assessment can count as payment for the two-year exception.
• The amended return must raise only issues related to that assessment.
• The refund claim cannot exceed the assessment payment covered by the exception.
• Preserve the dates of every collection, offset, amended return, and refund claim.

Common questions

Q: Why had the ordinary filing period expired?
A: The nonprofit did not fully pay by the extended due date, so the ruling measured the three-year period from the original June 15, 2009 due date; it expired June 15, 2012.

Q: What restarted a refund opportunity?
A: The Department's February 2013 collection against another state refund counted as payment of the assessment.

Q: Was any amended claim within two years sufficient?
A: No. The claim also had to address only the assessment and seek no more than the amount paid.

Q: Did Virginia promise the entire claimed refund?
A: No. It said it would process the amended return and, as appropriate, abate the assessment and issue a refund with interest.

Citations and references

• IRC § 501(c)(5); Va. Code §§ 2.2-4800 through 2.2-4809.
• Va. Code §§ 58.1-441 B and 58.1-453.
• Va. Code § 58.1-1823, including § 58.1-1823 A (iv).
• Virginia Public Document 99-90, discussed for collection payments.

Subject

Virginia Debt Collection Act; Taxpayer error in tax filing

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-186

Original ruling text

October 18, 2013

Re: § 58.1-1821 Application: Corporate Income Tax

Dear *:

This will reply to your letter in which you request a refund of corporate income tax on behalf of * (the "Taxpayer") for the taxable year ended December 31, 2008.

FACTS

The Taxpayer, a nonprofit organization generally exempt from federal income tax under Internal Revenue Code (IRC) § 501(c)(5), filed its 2008 Virginia corporate income tax return in May 2009 to report unrelated business taxable income (UBTI). The Taxpayer did not pay the tax, and the Department issued an assessment. A portion of the balance due was withheld from a refund of an overpayment to a Virginia state university under the Virginia Debt Collection Act ( Va. Code §§ 2.2-4800 through 2.2 -­ 4809). In February 2013, the Department applied the refund towards the balance due on the assessment.

The Taxpayer subsequently reviewed its 2008 return and discovered that it had mistakenly reported the UBTI on its Virginia return without applying a net operating loss deduction (NOLD). Had the NOLD been reported properly, the Taxpayer would have had no Virginia taxable income. To correct the error, the Taxpayer filed an amended return in February 2013. The Department denied the refund because the return was not filed within the statute of limitations. The Taxpayer appeals, contending the Department should accept the amended return as filed because the Taxpayer received no notice of the assessment and immediately tried to correct its mistake upon learning of it for the first time.

DETERMINATION

Pursuant to Va. Code § 58.1-441 B, a nonprofit organization otherwise exempt from federal income tax must file a corporate income tax return to report unrelated business taxable income or other taxable income, if any, on or before the 15 th day of the sixth month following the close of its taxable year.

Virginia Code § 58.1-453 allows taxpayers that are required to file corporate income tax returns to elect an extended due date six months after the original due date or 30 days after the extended due date for filing the federal income tax return, whichever is later. 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. If the taxpayer intends to take the extension but then does not file a return or pay the full amount of the tax due by the extended due date, the taxpayer is treated as if no extension had been granted.

When a return has been filed on or before an original or extended due date, whether such extension was granted by the Department or automatically, the general rule is that an amended return must be filed within three years of the original or extended due date, as applicable. See Va. Code § 58.1-1823.

In this case, the Taxpayer's 2008 return was due on June 15, 2009, with an extended due date of December 15, 2009. The Taxpayer filed the return and reported a tax due but did not pay the full amount by the extended due date. As such, the three year period of limitations began to run as of the original due date. The Taxpayer's amended 2008 return was filed in February 2013, well after the general statute of limitations had expired on June 15, 2012.

Virginia Code § 58.1-1823, however, also includes a number of exceptions to the general rule when specific circumstances are present. Specifically, under Va. Code § 58.1-1823 A (iv), a taxpayer may file an amended return within two years after the payment of an assessment, provided such amended return raises issues solely relating to such assessment and the claim for refund does not exceed the amount of such payment. Amounts obtained by collection actions and applied towards a Taxpayer's assessment are considered payments for purposes of this exception. See Public Document (P.D.) 99-90 (4/23/1999).

The assessment was paid in part when the Department applied the payment it withheld from the Taxpayer towards the outstanding balance. The amended return was filed shortly thereafter, well within two years of the payment. The only issued raised on the amended return was the Taxpayer's error in reporting the amount of UBTI without considering the NOLD on the original return, which resulted in the assessment. In addition, the amended return did not seek a refund exceeding the amount of the assessment. As such, the amended return meets all the requirements of Va. Code § 58.1-1823 A (iv) and was timely filed. Accordingly, the Department will process the amended return and, as appropriate, abate the assessment and issue a refund, including applicable interest.

The Code of Virginia sections and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions 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,

Craig M. Burns

Tax Commissioner

AR/1-5409650337.M