Was a December 2014 amended return timely to recover a 2007 Virginia assessment paid through a tax lien in February 2012?

Subject

The statutes are clear and do not provide any discretion to allow for a refund beyond the statute of limitations.

Plain-English summary

Virginia denied the refund because the taxpayers filed too late under both potentially available deadlines. Their 2007 return was due May 1, 2008, making May 1, 2011 the ordinary deadline for an amended return. They did not file until December 2014.

The assessment was paid in February 2012 when the Department drafted their bank account to satisfy a tax lien. Virginia law also allowed an amended return within two years after payment when the issues related solely to that assessment and the refund did not exceed the payment. The December 2014 filing missed that period too.

Because both limits had expired, Virginia did not reach the taxpayers' substantive argument that only the wife's income was taxable while the military husband was domiciled elsewhere. The Commissioner said the statutes gave no discretion to issue the refund late.

What this means for you

• A substantive residency or filing-status argument does not preserve a refund after the claim period expires.
• Track both the original return deadline and any special period measured from payment of an assessment.
• A payment collected through a lien can start the two-year period described in the ruling.
• File the amended return before the earliest applicable deadline and identify the assessment issues precisely.

Common questions

Q: What was the general amended-return deadline?

A: May 1, 2011 for the 2007 return.

Q: Did the February 2012 lien payment create more time?

A: It created a two-year period under Va. Code § 58.1-1823(A)(iv), but the December 2014 filing still came too late.

Q: Did Virginia decide the military-domicile argument?

A: No. The expired refund periods disposed of the request.

Citations and references

• Va. Code §§ 58.1-104, 58.1-312(A)(1), 58.1-321, 58.1-326, 58.1-341, and 58.1-1823(A)(iv).
• IRC § 6103(d).
• P.D. 14-33 and P.D. 15-49.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-92

Original ruling text

June 9, 2017

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 “Taxpayers”) on tax due for the taxable year ended December 31, 2007.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayers may have income subject to Virginia income tax. Additional information was requested. When no response was received, the Department issued an assessment for the 2007 taxable year. The assessment was satisfied with a payment from a tax lien issued in February 2012.

The Taxpayers filed a 2007 Virginia nonresident individual income tax return in December 2014 and requested a refund. The Department denied the refund because the return was filed beyond the statute of limitations. The Taxpayers filed an appeal, contending the husband was a domiciliary resident of * (State A) stationed by the military in Virginia and only the wife's income should have been subject to Virginia income tax.

DETERMINATION

Virginia Filing Requirement

Virginia Code § 58.1-341 provides that a Virginia resident who is required to file a federal income tax return, is also required to file a Virginia income tax return unless the resident is exempt from filing under Va. Code § 58.1-321. When a resident does not file a proper Virginia return, Internal Revenue Code (IRC) § 6103(d) authorizes the Department to obtain information from the IRS that will help in determining the resident's tax liability. See Public Document (P.D.) 14-33 (3/7/2014) and P.D. 15-49 (4/3/2015).

Virginia Code § 58.1-326 provides, “If a husband or wife is a resident and the other is a nonresident, separate taxes shall be determined on their separate Virginia taxable incomes on such single or separate forms as may be required by the Department, unless both elect to determine their joint Virginia taxable income as if both were residents. The Department's records show the wife filed Virginia income tax returns in 2003 through 2006 taxable years. Because the Taxpayers filed a joint federal return with a Virginia address, and made no return with the Department, an assessment was issued based on federal record.

Virginia Code § 58.1-104 generally requires the Department to make an assessment of underpaid tax within three years from the last day prescribed by law for the timely filing of the return. When a taxpayer fails to file a required Virginia return, however, Va. Code § 58.1-312 A 1 permits the Department to assess the appropriate tax at any time.

Generally, Va. Code § 58.1-1823 allows an individual to file an amended return within three years from the last day prescribed by law for the timely filing of the return. The due date for the 2007 Virginia income tax return was May 1, 2008. In order to have timely filed an amended return, the Taxpayers would have to have filed on or before May 1, 2011. In this case, the Taxpayers' 2011 amended return was filed in December 2014, well after the general statute of limitations had expired. Virginia Code § 58.1-1823, however, also includes a number of exceptions to the general rule when specific circumstances are present.

Under Va. Code § 58.1-1823 A (iv), an individual has two years from the payment of an assessment to file an amended return, provided that the amended return raises issues relating solely to such assessment and the refund does not exceed the amount of such payment. In this case, the Department assessed the Taxpayers' to reflect federal adjusted gross income (FAGI) reported to the Department by the IRS. The assessment was deemed to have been paid in February 2012 when the Taxpayers' bank account was drafted to satisfy a lien issued by the Department. In this case, the Taxpayers did not file their 2007 amended return until well after two year period in Va. Code § 58.1-1823 A (iv) had expired.

The statutes are clear and do not provide any discretion to allow for a refund beyond the statute of limitations. Accordingly, the Department has no choice but to deny the Taxpayers' request for an income tax refund for the 2007 taxable year.

The Code of Virginia sections and public documents 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/885.D