Could a late original return serve as a timely protective refund claim after the taxpayer paid a Virginia nonfiler assessment?

Plain-English summary

Virginia assessed the taxpayer for not filing a 2011 return, and he paid the assessment in February 2015. His original 2011 return, filed in August 2017, claimed an overpayment after the ordinary refund deadline; his December 2017 appeal also arrived six days after the separate protective-claim deadline.

The return itself was filed within three years of the December 2014 assessment. Virginia allows a later-filed original return after a paid nonfiler assessment to serve as a protective claim when it supplies the required identifying, assessment, payment, error, and remedy information. The Department therefore directed that the return be reviewed and a refund issued as warranted.

Citations and references

• Va. Code §§ 58.1-499 D and 58.1-341 A
• Va. Code §§ 58.1-1823 and 58.1-1824
• 23 VAC 10-20-190 A
• Va. Code § 58.1-311
• P.D. 86-224 and P.D. 17-145

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-18

Original ruling text

March 8, 2018

Re: § 58.1-1821 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, 2011.

FACTS

The Department issued an assessment to the Taxpayer on December 2, 2014, after he failed to file a Virginia individual income tax return for the 2011 taxable year. The assessment was paid in full on February 20, 2015. In August 2017, the Taxpayer filed his 2011 return, 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 dated December 8, 2017, the Taxpayer appealed the Department's denial, contending he timely filed a protective claim for refund.

DETERMINATION

Statute of Limitation 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 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 August 2017, long after the statute of limitations had expired. Had the Taxpayer not already paid an assessment for the 2011 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 exemptions to the three-year statute of limitations in Virginia Code § 58.1-1823 would apply.

Protective Claim

Because the Taxpayer paid an assessment for the 2011 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 for the year or years subject to the request 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 December 2, 2014, and it was paid in full on February 20, 2015. The Taxpayer filed his appeal on December 8, 2017. In order to be timely under Virginia Code § 58.1-1824, the Taxpayer must have filed his protective claim by December 2, 2017, and as such, the appeal received on December 8, 2017, cannot be considered a timely filed protective claim.

Title 23 VAC 10-20-190 A 1, however, allows that there is no form for applications for protective claims. The Department will accept any submission that sufficiently identifies the Taxpayer, type of tax, taxable period, remedy sought, date of assessment and date of payment, in a statement signed by the taxpayer setting forth each alleged error in the assessment and the grounds upon which the Taxpayer relies. See Title 23 VAC 10-20-190 A. In cases where an assessment for not filing a tax return has been paid, the Department has accepted a subsequently filed return as a valid protective claim, provided it is filed within three years of the assessment date and includes all the information required under Title 23 VAC 10-20-190 A 1. See P.D. 17-145 (8/23/2017). Taxpayers should be aware, however, that they should reference the date of assessment and date of payment when filing such a return for it to be considered a valid protective claim.

Therefore, the return will be reviewed and processed and a refund issued as warranted. The Taxpayer should be aware that his return for the 2011 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 his federal income tax return, he must report such changes within one year of the IRS's final determination. See Virginia Code § 58.1-311.

The Code of Virginia sections, regulations, 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 Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1533.A