We filed our 2016 Virginia return late because of serious medical problems, asking to apply the overpayment to 2017 -- does a severe illness extend the three-year deadline to claim a refund or credit?

Plain-English summary

A married couple's 2016 Virginia individual income tax return was due May 1, 2017. They didn't file it until June 13, 2020 -- more than three years late -- and reported an overpayment for 2016 that they wanted applied as an estimated-tax credit toward their 2017 liability instead of refunded outright. The Department denied the credit because the return was filed after the statute of limitations for claiming a refund had expired. Denying the credit, in turn, meant the couple hadn't actually prepaid as much toward 2017 as they'd assumed, producing an assessment for underpaid 2017 tax. The couple paid that assessment and appealed, explaining that serious medical problems were the reason they filed so late.

The three-year deadline applies to credits, not just cash refunds. Virginia Code § 58.1-499 D bars any refund -- whether the Department catches an overpayment itself or the taxpayer applies for one -- unless it's identified or applied for within three years of the return's original filing deadline. The Tax Commissioner confirmed that requesting an overpayment be credited toward a later year's liability is treated the same as requesting a refund for this purpose, so the same three-year clock applied here.

Virginia does address disability -- just not by pausing the clock. The couple's medical difficulties raised the question of whether disability tolls (pauses) the statute of limitations. Virginia Code § 58.1-341 F does specifically address taxpayers with disabilities, but only by giving them the RESPONSIBILITY to have a fiduciary or duly authorized agent file the return on their behalf -- it says nothing about suspending the filing deadline or the refund limitations period for someone who is mentally or physically disabled. Since the couple's actual 2016 return wasn't filed until June 2020 -- well after the May 1, 2020 deadline that would have preserved a refund/credit claim -- the denial was correct, and Virginia law gave the Department no discretion to make an exception, however sympathetic the underlying medical circumstances.

What this means for you

Taxpayers dealing with a serious illness or disability during filing season

If you (or a family member) may be unable to file on time, arrange for a fiduciary or authorized agent to file on your behalf rather than assuming the deadline itself will be extended -- Virginia law provides a mechanism for someone else to file for you, but does NOT pause the statute of limitations for claiming refunds or credits.

Anyone planning to apply an overpayment as a credit toward a future year rather than taking a cash refund

Treat that request exactly like a refund claim for timing purposes -- it's still subject to the same three-year statute of limitations running from the original return's filing deadline, not a separate or more flexible clock.

Taxpayers who miss a filing deadline for any reason and later discover an overpayment

File as soon as possible -- Virginia's three-year limitations period gives the Department no discretion to make exceptions, regardless of the underlying reason for the delay (medical, personal, or otherwise).

Common questions

Q: Does a severe illness or medical condition pause the three-year deadline to claim a Virginia refund?
A: No -- this ruling confirms Virginia law addresses disability only by allowing someone else to file the return for you, not by suspending the statute of limitations itself.

Q: If I apply my overpayment as a credit toward next year's estimated tax instead of asking for a refund check, does a different deadline apply?
A: No -- applying an overpayment as a credit is treated the same as a refund claim, and is subject to the identical three-year statute of limitations.

Q: Can the Department use its discretion to make an exception to the three-year refund deadline for sympathetic circumstances?
A: No -- the ruling states the statutory language is clear and gives the Department no discretion to extend or waive the three-year limitations period.

Citations and references

• Public Document 09-88 (5/28/2009) -- cited for the rule that a refund application must be received within three years of the return's timely-filing deadline
• Joseph Richard Azar v. Virginia Dep't of Taxation, Circuit Court of Arlington County, Case No. 16-1910, final order reported as Public Document 17-140 (6/30/2017) -- cited alongside P.D. 09-88 on the same refund-limitations point
• Public Document 10-204 (9/2/2010) -- cited for the conclusion that a severe illness or medical condition, even though it may qualify as a disability under Va. Code § 58.1-341 F, does not suspend the statute of limitations

Subject

Administration : Refund - Statute of Limitations, Severe Illness or Medical Condition

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-68

Original ruling text

May 25, 2021

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the assessment of individual income tax issued to * (the “Taxpayers”), for the taxable year ended December 31, 2017.

FACTS

The Taxpayers filed a 2016 Virginia individual income tax return in June 2020, reporting an overpayment of income tax and requesting that the overpayment be credited as an estimated payment for the following taxable year. The Department denied the credit because the return was filed beyond the refund period allowed by the statute of limitations. The denial of the overpayment credit caused a corresponding increase in the amount of tax due on their 2017 return. Accordingly, an assessment was issued for the 2017 taxable year for the underpayment of income tax. The Taxpayers paid the assessment and appeal, contending their medical problems prevented them from timely filing the returns.

DETERMINATION

Statute of Limitations for 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:

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.]

Although the Taxpayers have not requested an actual refund, but have requested that an overpayment of tax for the 2016 taxable year be applied against the income tax liability for the 2017 taxable year, the laws regarding refunds applies. As stated above, Virginia Code § 58.1-499 requires that an application for refund must be received within three years from the last day prescribed by law for the timely filing of the return. See Public Document (P.D.) 09-88 (5/28/2009). See also Joseph Richard Azar vs. Virginia Dep’t of Taxation , Circuit Court of Arlington County, Case No. 16-1910, the final order for which is reported as P.D. 17-140 (6/30/2017).

Individuals with Medical Conditions

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. Virginia Code § 58.1-341 F provides that an individual who is unable to make a return because of a disability has the responsibility of having such return filed by a fiduciary or duly authorized agent. Thus, Virginia law addresses the requirements of filing returns for taxpayers who have disabilities. While a severe illness or medical condition may be considered a disability for purposes of Virginia Code § 58.1-341 F, the statute does not provide for the suspension of the statute of limitations for an individual who is mentally or physically disabled. See P.D. 10-204 (9/2/2010).

Based on Virginia statutes, the due date for the Taxpayers’ 2016 individual income tax return was May 1, 2017. As such, the return was required to be filed by May 1, 2020, in order to receive a refund for the 2016 taxable year. The original 2016 return was not filed until June 13, 2020, after the statute of limitations had expired.

CONCLUSION

The provisions of Virginia Code § 58.1-499 D are clear and do not provide the Department with any discretion in enforcing the three-year limitations period to apply for a refund. Accordingly, the Department was correct in denying the overpayment credit claimed on the 2016 return and making the corresponding adjustment to the 2017 return. Therefore, the assessment is upheld. The balance of the assessment has been paid by the Taxpayers. Therefore, no further action is required.

The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and 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/3663.M

Related Documents

09-88

10-204

17-104