Can a taxpayer still get a refund of a 2014 Virginia income tax overpayment if the return claiming it wasn't filed until December 2019?

Subject

Administration : Refund - Statute of Limitations; Return - Responsibility to File

Plain-English summary

A married couple (the Taxpayers) filed their 2014 Virginia individual income tax return in December 2019 -- more than five years after the tax year ended -- reporting an overpayment and asking that it be credited toward their 2015 tax liability. The Department denied the request because the return was filed well beyond the refund period allowed by the statute of limitations. That overpayment mattered down the line: without it, the Taxpayers ended up with an underpayment for the 2016 taxable year, and the Department had already issued an assessment for that year in March 2019.

The Taxpayers argued their 2014 return had actually been mailed on time, by the extended October 2015 due date, and that the Department should have notified them it never arrived. They also pointed to the death of their tax representative and the Covid-19 pandemic as reasons the late filing wasn't resolved sooner.

The Tax Commissioner rejected all of these arguments and denied the refund. Virginia law gives taxpayers only three years from the last day prescribed for timely filing to claim a refund (Va. Code § 58.1-499 D). Because the Taxpayers never filed their original 2014 return by the extended due date, they never validly elected the six-month extension in the first place (Va. Code § 58.1-344) -- so the clock ran from the original May 1, 2015 due date, not the extended one. That gave them until May 1, 2018 to file a refund claim; the return that finally arrived in December 2019 was filed years too late. The Commissioner also noted Virginia's tax system is a self-assessment system in which taxpayers bear responsibility for timely filing, that the Department had no record of an earlier mailed return, and that the Taxpayers had already been notified by letter in February 2017 -- while still within the three-year window -- that their 2014 overpayment had been adjusted. Finally, since the accountant's death and the pandemic both occurred in 2020, after the limitations period had already expired, they could not excuse the late filing.

What this means for you

Taxpayers who file individual income tax returns late

If you don't file your Virginia individual income tax return -- or don't file and pay in full -- by the extended due date, you are treated as if you never validly elected the six-month extension at all. That means your three-year window to claim a refund is measured from the original due date (May 1), not the extended one (November 1). Filing even a few months past the extended deadline can mean losing years of the limitations period you thought you had.

Anyone claiming their return was "lost in the mail"

If the Department keeps no record of receiving your return, it isn't on the hook to chase you down and confirm delivery. Virginia's system is built on self-assessment: taxpayers, not the Department, are responsible for making sure returns are actually filed and received on time. If you mail a paper return close to a deadline, consider using a method that gives you proof of timely filing.

Anyone relying on a preparer, and events after the deadline has passed

Circumstances like a tax preparer's death or a pandemic can be sympathetic, but the Commissioner only looks at whether they occurred before the statute of limitations expired. Here, both events happened in 2020, well after the May 2018 refund deadline had already run, so they had no bearing on the outcome. If something is going to disrupt your ability to file, address it well before your filing deadline, not after.

Common questions

Q: Why didn't the Taxpayers get credit for filing by the "extended" October 2015 due date?
A: Because an extension has to be properly elected, and that requires both filing the return within the extended period and paying the full estimated tax due by the original due date (Va. Code § 58.1-344). The Department had no record of a 2014 return arriving before the extended deadline at all -- the return it eventually received wasn't filed until December 2019. Since no valid extension was in effect, the three-year refund clock ran from the original May 1, 2015 due date instead.

Q: How is the three-year deadline calculated?
A: Under Va. Code § 58.1-499 D, a refund claim must be received within three years from the last day prescribed by law for timely filing the return. Individual returns are due May 1 under Va. Code § 58.1-341 A. Since no valid extension applied here, the deadline ran from May 1, 2015, expiring the day after May 1, 2018 -- i.e., May 2, 2018.

Q: Didn't the Department have a duty to tell the Taxpayers their return never arrived?
A: No. The ruling explains that Virginia's tax system, like the federal system, relies on self-assessment: taxpayers compute, file, and pay on their own, and are responsible for making sure their returns are actually filed on time. The Department also pointed out it had already notified the Taxpayers by letter in February 2017 that their 2014 overpayment had been adjusted -- while they still had time left to act.

Q: Could the accountant's death or the Covid-19 pandemic excuse the late filing?
A: No. Both events occurred in 2020, after the three-year limitations period had already expired in May 2018. Because they happened after the deadline, they could not have caused the original late filing and did not extend the statute of limitations.

Q: What happened to the 2016 assessment mentioned in the ruling?
A: The 2014 overpayment, had it been timely claimed, would have offset the Taxpayers' 2016 underpayment. Because the refund was denied, the Department's records showed a remaining balance of interest due on the 2016 assessment, and it indicated a bill would be issued for that balance, payable within 30 days of the revised bill.

Citations and references

Statutes:

• Va. Code § 58.1-1821 (basis for applications like this one)
• Va. Code § 58.1-499 A (Department must order a refund of an overpayment)
• Va. Code § 58.1-499 D (refund claims barred unless made within three years of the last day prescribed for timely filing)
• Va. Code § 58.1-341 A (individual income tax returns due May 1 of the following year)
• Va. Code § 58.1-344 (six-month filing extension, conditioned on filing within the extended period and paying the estimated balance due by the original due date)

Related public documents:

• P.D. 10-238 (9/30/2010) (a taxpayer who elects an extension but fails to timely file or pay in full is treated as if no extension had been granted)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-18

Original ruling text

February 16, 2021

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which the seek a refund of the individual income tax paid by * (the “Taxpayers”) for the taxable year ended December 31, 2014.

FACTS

The Taxpayers filed a 2014 Virginia individual income tax return in December 2019, reporting an overpayment of income tax and requesting that the overpayment be credited against their income tax liability for the 2015 taxable year. The Department denied the request because the return was filed beyond the refund period allowed by the statute of limitations. Adequate tax was paid for the 2015 taxable year without the overpayment from the 2014 taxable year, but an underpayment of tax was the result for the 2016 taxable year. As such, an assessment was issued in March 2019 for the 2016 taxable year. The Taxpayers request a refund of the overpayment of tax paid for the 2014 taxable year, contending that their 2014 return was filed by the extended October 2015 due date. The Taxpayers also argue that the pandemic and the death of their tax representative hindered their ability to resolve the late filing of the return.

DETERMINATION

Statute of Limitations

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 taxpayers file individual income tax returns by May 1 of the year following the tax year for which the return is filed. Virginia Code § 58.1-344 provides a six-month filing extension of the due date for filing the income tax return.

Taxpayers are allowed to elect to take a six month extension to file their returns. In order to elect an extension, a taxpayer must (i) file the return within the extended period, and (ii) on or before the original due date for the filing of the return, pay the full amount properly estimated as the balance of the tax due for the taxable year. See Virginia Code § 58.1-344. If the taxpayer intends to take the extension but then does not file a return or pay the full amount of the tax due by the extended due date, the taxpayer is treated as if no extension had been granted. See Public Document (P.D.) 10-238 (9/30/2010).

When an original return has been filed after the extended due date, the taxpayer has from three years after the original due date to file an amended return. This is because Virginia Code § 58.1-344 A permits an individual to elect “an extension of time within which to file the income tax return . . . .” If a taxpayer has not filed an original return by the extended due date, a valid election to extend the due date has not been made. In such cases, the extension is negated and the last day allowed for the timely filing of the return reverts to the original due date of such return.

Accordingly, because the Department had not received the Taxpayers’ 2014 return before the extended due date, the Taxpayers had three years from the original due date, May 1, 2015, in which to file a timely request for refund. The statute of limitations for filing a return claiming a refund for the 2014 taxable year expired the day after May 1, 2018. The Taxpayer’s 2014 income tax return that was received by the Department was filed on December 3, 2019, well beyond the extended due date.

Notification

The Taxpayers contend that they timely filed their 2014 return by mail prior to the extended due date and that the Department was responsible for notifying them that the return had not been received. The Department has no record of receiving a 2014 return from the taxpayers that was mailed prior to the extended due date.

Virginia receives approximately 3.5 million individual income tax returns per year and only a small portion of the individual taxpayers can be audited or reviewed. Like the federal tax regimen, Virginia’s taxing system is based largely on the concept of self-assessment. A taxpayer computes his own income tax, completes his own return, files the return, and pays the tax indicated. Virginia has implemented a self-assessment system based on the federal system because it is less intrusive upon taxpayers, simpler, and less costly to administer. Consequently, taxpayers are responsible for making sure their returns are filed on a timely basis.

Further, the Taxpayers were notified by letter in February 2017 that the overpayment from the 2014 taxable year had been adjusted. At that time, they were well within the three year period to claim the refund.

Professional Tax Preparation and the Pandemic

The Taxpayers claim that their accountant’s death and the Covid-19 pandemic hindered the resolution of their claim. Both the death of their accountant and the pandemic occurred in 2020, well after the limitations period for a claim for refund.

CONCLUSION

Therefore, in accordance with Virginia law and the Department’s longstanding policy, the request for a refund of the overpayment of Virginia income tax for the taxable year ended December 31, 2014 cannot be granted. In addition, although the Taxpayers made a payment towards their 2016 tax assessment, the Department’s records indicate that there is a balance of interest due. A bill will be issued for this balance. The Taxpayers should remit payment for the outstanding balance within 30 days from the date of the revised bill.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3568.B

Related Documents

10-238