Could a taxpayer obtain review of a late refund claim after fully paying a Virginia assessment?

Subject

Taxpayer’s protective claim was timely filed within three years of the date of the assessment.

Plain-English summary

Virginia assessed a taxpayer for failing to file a 2010 return. She paid the assessment in full, later filed the return showing an overpayment, and appealed when the Department denied the refund as late.

The ordinary refund deadline had expired: a 2010 individual return was due May 2, 2011, and generally had to be filed by May 2, 2014 to produce a refund. But a separate protective-claim rule applied because the taxpayer had paid an assessment.

The assessment was issued March 19, 2014 and was fully paid by December 2014. The taxpayer claimed the refund in December 2016 and appealed on March 13, 2017. Virginia treated the paid assessment appeal as a protective claim filed within three years of the assessment, ordered the return reviewed, and directed that any warranted refund be issued.

What this means for you

• A late original return may be outside the ordinary refund period.
• Paying an assessment can open a separate protective-claim route under Va. Code § 58.1-1824.
• Both full payment and filing within three years of the assessment are required.
• A timely protective claim preserves review; it does not guarantee the claimed refund amount.

Citations and references

• Va. Code §§ 58.1-499 A and D, 58.1-341 A, 58.1-1823, 58.1-1824, and 58.1-311.
• 23 VAC 10-20-190 A 1.
• P.D. 86-224.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-145

Original ruling text

August 23, 2017

Re: § 58.1-1824 Application: Individual Income Tax

Dear*:

This will reply to your letter in which you seek a refund of the overpayment of individual income tax paid by * (the “Taxpayer”) for the taxable year ended December 31, 2010.

FACTS

The Department issued an assessment to the Taxpayer on March 19, 2014, after she failed to file a Virginia individual income tax return for the 2010 taxable year. By December 2014, the assessment had been paid in full. In December 2016, the Taxpayer filed a return for the 2010 taxable year, reporting an overpayment of income tax and requesting a refund. The Department denied the refund because the return was filed beyond the refund period allowed by the statute of limitations. By letter postmarked March 13, 2017, the Taxpayer appealed the Department's denial, contending she should be able to receive her refund because she has now filed her 2010 federal and Virginia income tax returns.

DETERMINATION

Statute of Limitations on Refunds

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.]

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 2010 individual income tax return was May 2, 2011 (May 1, 2011, was on a Sunday). As such, the return was required to be filed by May 2, 2014, in order to receive a refund for the 2010 taxable year.

The original 2010 Virginia income tax return was not filed until December 2017, long after the statute of limitations had expired. Had the Taxpayer not already paid an assessment for the 2010 taxable year and was merely claiming the refund for the first time, the refund claim would not have been timely. In addition, because the Taxpayer was not filing an amended return to claim the refund, none of the exceptions to the three year statute of limitations found in Va. Code § 58.1-1823 applied.

Protective Claim

Because the Taxpayer paid an assessment for the 2010 taxable year, it is necessary to determine whether the Taxpayer timely filed a protective claim for refund. Virginia Code § 58.1-1824 provides that “any person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing for refund with the Tax Commissioner . . . within three years of the date such tax was assessed.” Virginia Code § 58.1-1824, therefore, expressly limits the right to file a protective claim to cases in which both the filing of the claim and the payment of the assessment occurred within three years of the assessment. See Public Document (P.D.) 86-224 (11/3/1986). In addition, all assessed taxes, penalties and accrued interest must be paid before a taxpayer may file a protective claim. See Title 23 of the Virginia Administrative Code (VAC) 10-20-190 A 1.

The assessment was issued on March 19, 2014, and it was paid in full as of December 2014. The Taxpayer filed her return claiming the refund in December 2016. Once it was denied, she filed her appeal on March 13, 2017, under Va. Code § 58.1-1821, which can be treated as a protective claim under Va. Code § 58.1-1824 because the tax has been paid. In either case, her protective claim was timely filed within three years of the date of the assessment.

Therefore, the return will be reviewed and processed and a refund issued as warranted. The Taxpayer should be aware that her return for the 2010 taxable year remains subject to review by the Department within the applicable statute of limitations. In addition, should the Internal Revenue Service (IRS) make any adjustments to her federal income tax return, she must report such changes within one year of the IRS's final determination. See Va. Code § 58.1-311.

The Code of Virginia sections, regulation 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/1221.M