Could a Virginia taxpayer's otherwise late amended refund return remain timely if it was filed within one year after another state's final determination changed the taxpayer's resident status?

Plain-English summary

A military servicemember filed a 2010 Virginia resident return, then sought a refund by claiming she had actually been a resident of another state. Her first amended Virginia return was timely but included a contradictory nonresident return from the other state, so Virginia made no adjustment. Her second amended return included an other-state resident return but arrived after Virginia's ordinary three-year deadline.

The claim was not necessarily barred. Va. Code § 58.1-1823 A (v) allowed an amended refund return within one year after another state's final determination, limited to the Virginia tax decrease attributable to that change. Virginia gave the taxpayer 45 days to prove State A's final action.

The two amended returns

The first amended return, filed in 2013, tried to change Virginia status from resident to nonresident. The attached State A nonresident return refunded all State A withholding and contradicted that position. When Virginia neither refunded nor responded in writing within 90 days, that amended application was deemed denied in November 2014.

The second amended return was filed in December 2014 with a State A resident return. It missed the ordinary Virginia amended-return period, but could still qualify if filed within one year of State A's final determination.

What counted as proof

Because Virginia had no specific statute or regulation defining another state's final determination for this purpose, the ruling allowed any notice showing acceptance, processing, or adjustment of the State A amended return filed November 4, 2013.

Common questions

Did the ruling grant the refund? No. It gave a final 45-day opportunity to document State A's final determination, after which Virginia would review and adjust the 2010 liability as appropriate.

Was filing the other-state resident return alone enough? Not yet. Virginia requested proof that State A had finally accepted, processed, or adjusted it.

How large could the special refund be? No more than the Virginia tax decrease attributable to the other state's change.

Citations and references

• Va. Code §§ 58.1-1821, 58.1-1823, 58.1-1824, and 58.1-1825
• Commonwealth v. Cross, 196 Va. 375 (1954)
• P.D. 15-98

Subject

Filing Requirements

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-89

Original ruling text

June 8, 2017

Re: § 58.1-1824 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you file a protective claim for refund for the individual income tax paid by * (the “Taxpayer”) for the taxable year ended December 31, 2010. I apologize for the delay in responding to your request.

FACTS

The Taxpayer, a military service member, was assigned to a Virginia duty station during 2010 and filed a Virginia individual income tax return as a resident. In September 2013, the Taxpayer filed an amended return requesting a refund of the tax paid on the basis that she was a resident of * (State A) during 2010. Because the State A return provided was a nonresident return and was not consistent with her claim of being a resident of State A, the Department did not process the return. In December 2014, the Taxpayer submitted a second amended return and included a copy of a State A resident return. The application for refund was denied on the basis that the statute of limitations had expired. The Taxpayer filed an appeal, contending the request for refund was timely filed.

DETERMINATION

Protective Claim

Virginia Code § 58.1-1824 permits any person who has paid an assessment of taxes administered by the Department of Taxation to file a protective claim for refund within three years of the date of an assessment. Pursuant to the authority granted the Department 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. As permitted by statute, the Taxpayer's request has been treated as an appeal under Va. Code § 58.1-1821.

Remedies for Assessments

The remedies available to a taxpayer seeking a refund of state income taxes are set forth in Va. Code § 58.1-1821 (Application to Tax Commissioner for correction), § 58.1-1823 (Reassessment and refund upon filing of amended return), § 58.1-1824 (Protective claim for refund) and § 58.1-1825 (Application to circuit court for correction of erroneous or improper assessments). Because the remedies are statutory in nature, one seeking relief from an allegedly erroneous tax assessment must proceed strictly according to the statute. See Commonwealth v. Cross , 196 Va. 375 (1954).

Generally, Va. Code § 58.1-1823 allows a taxpayer to file an amended return within three years from the last day prescribed by law for the timely filing of the return. Under Va . Code § 58.1-1823 A (v), a taxpayer has one year from the final determination of a change made by any other state to file an amended return to request a refund, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such change.

Because the Taxpayer filed her original 2010 return within the extended due date, a timely amended return was required to be filed by November 3, 2014 (November 1 fell on a Saturday). The Taxpayer amended her Virginia return on August 17, 2013. In this return, the Taxpayer attempted to change her status from resident to nonresident. Because the Taxpayer provided a copy of a nonresident State A return, which showed a refund of all withholding payments made to State A, and such evidence was contradictory to the Virginia amended return, the Department made no adjustments to the Virginia filing.

Pursuant to Va. Code § 58.1-1823, the Department is granted 90 days to provide a written response to an amended return. In the event the Department does not issue a refund or provide a written response within 90 days, the application is considered denied and deemed to be an assessment for the purpose of enabling the taxpayer to pursue the remedies allowed under Virginia Law. Because no written response was issued, the Taxpayer's first amended return was denied in November 2014.

Application for Change of Self Assessment

The Taxpayer filed a second Virginia amended return on December 21, 2014, requesting to change her status from resident to nonresident, and seeking a refund of overpayment of tax. By letter dated June 19, 2015, the Department denied the Taxpayer's application on the basis that the request was received beyond the statute of limitations for an amended return.

As noted above, pursuant to Va. Code § 58.1-1823 A (v), a taxpayer has one year from the final determination of a change made by any other state to file an amended return to request a refund, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such change. Thus, if the Taxpayer received a final determination from State A in regard to her resident status, and if the second amended Virginia return was filed within one year after such final determination from State A, then the taxpayer is not barred by the statute of limitations.

In Public Document (P.D.) 15-98 (5/8/2015), the Department ruled that although the Department has promulgated regulations concerning what constitutes a final determination when the Internal Revenue Service (IRS) conducts federal audits, there are no statutes or regulations that define what a final determination is for other states. Therefore, the Taxpayer may provide any notice indicating acceptance, processing or adjustments to the amended State A return as filed on November 4, 2013.

CONCLUSION

The Taxpayer will have a final opportunity to provide the Department proof of a final determination issued from State A. The requested documents should be provided within 45 from the date of this letter. Once the requested information is received, the Department will conduct a review and adjust the Taxpayer's 2010 Virginia income tax liability accordingly. The information should be submitted to: Virginia Department of Taxation, Appeals and Rulings, Attention: *, Post Office Box 27203, Richmond, Virginia 23261-7203. If the requested information is not provided within the time allowed, the Department will consider the matter closed.

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 response, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/620.D