Can a taxpayer bypass Virginia's refund deadline by carrying a late-claimed overpayment forward as a credit to the next year?

Subject

Late overpayment could not be carried to another year

Plain-English summary

Virginia denied the taxpayer's request to apply a 2011 overpayment against 2012 tax because the request was filed after the refund limitation expired. Calling the overpayment a carryforward credit instead of a cash refund did not avoid the deadline.

The 2011 Virginia return was due May 1, 2012. Under the three-year period described in Va. Code § 58.1-499(D), the taxpayer needed to file by May 1, 2015 to obtain the overpayment. The original return was not filed until June 2015.

The Commissioner rejected an interpretation that would allow an old overpayment to be carried through successive years until it reached an open year. That approach could make the refund limitation meaningless for nonfilers who had already paid through withholding or estimated tax.

Result: the 2011 overpayment could not be applied to the 2012 liability.

What this means for you

• A request to credit an overpayment to another year can be subject to the same deadline as a refund request.
• Filing an original return after the refund period can forfeit both a cash refund and a carryforward of the overpayment.
• Track refund limitation dates separately from assessment or collection deadlines.
• This ruling addresses the statute and dates stated in the 2015 determination; check current exceptions and filing rules.

Common questions

Q: Why was the filing deadline May 1, 2015?

A: The 2011 return was due May 1, 2012, and the ruling applied a three-year refund period measured from that due date.

Q: Did requesting a credit instead of cash preserve the overpayment?

A: No. The Department treated both forms of relief as governed by the refund limitation.

Q: When was the return filed?

A: June 2015, after the May 1, 2015 deadline.

Citations and references

• Va. Code § 58.1-499(A), (D).
• Va. Code § 58.1-341(A).
• Jones v. Conwell, 227 Va. 176, 314 S.E.2d 61 (1984).
• United States v. Kubrick, 444 U.S. 111 (1979).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-252

Original ruling text

December 28, 2015

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 for individual income tax paid by * (the "Taxpayer") to tax due for the taxable year ended December 31, 2012.

FACTS

The Taxpayer filed a 2011 Virginia individual income tax return in June 2015, reporting an overpayment of income tax and requesting that the overpayment be credited against his income tax liability for the 2012 taxable year. The Department denied the request because the return was filed beyond the refund period allowed by the statute of limitations. The Taxpayer appeals the Department's denial, contending the statute of limitations on refunds is not applicable to overpayment credits.

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 Department shall order a refund of the overpayment. Virginia Code § 58.1-499 D specifies, however, in pertinent part that:

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 has not requested an actual refund, but has requested that an overpayment of tax for the 2011 taxable year be applied against the income tax liability for the 2012 taxable year, the laws regarding refunds apply. As stated above, Va. Code § 58.1-499 requires that an application for refund must be received within three years from the last day prescribed by law for the timely filing of the return. See Public Document (P.D.) 09-88 (5/28/2009).

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. Based on Virginia statutes, the due date for the Taxpayer's 2011 individual income tax return was May 1, 2012. As such, the return was required to be filed by May 1, 2015, in order to receive a refund for the 2011 taxable year. The original 2011 Virginia income tax return was not filed until June 2015, after the statute of limitations had expired on May 1, 2015.

The Taxpayer contends that the reference to "refund" in Va. Code § 58.1-499 D means that the three year statute of limitations does not apply as long as a taxpayer requests that the overpayment be credited on the following year's return.

The Virginia Supreme Court has ruled that statutes should not be interpreted in a manner that would make a portion of it useless, repetitious or absurd. See Jones v. Conwell , 227 Va. 176, 181, 314 S.E.2d 61, 64 (1984). In addition, it is well established that every act of the legislature should be read so as to give reasonable effect to every word and to promote the ability of the enactment to remedy the mischief at which it is directed. Id . Statute of limitations serve to protect individuals, businesses, and governments from situations "in which the search for truth may be seriously impaired by the loss of evidence, whether by death or disappearance of witnesses, fading memories, disappearance of documents, or otherwise." See U.S. v. Kubrick , 444 U.S. 111, 117, 100 S. Ct. 352, 317 (1979).

The Taxpayer's interpretation could effectively eliminate the statute of limitations on tax overpayments in certain circumstances. A non-filer, for example, who otherwise had satisfied his Virginia income tax liabilities by having income withheld from wages or making estimated payments could potentially file original income tax returns for any taxable year since Virginia first imposed an income tax. Instead of claiming refunds, however, he could claim overpayment credits and carry over such credits into each successive taxable year until they were finally carried over into a year that was within the statute of limitations to request a refund. In such circumstances, the refund would consist of aggregate overpayment credits carried forward for many years, rendering the statute of limitations meaningless.

Thus, while I empathize with the Taxpayer's situation, the Department's policy regarding the statute of limitations for claiming overpayment credits is clear. Accordingly, the Taxpayer's request to apply his overpayment for the 2011 taxable year against his income tax liability for the 2012 taxable year is denied.

The Code of Virginia sections 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/1-6174317253.M