Another state audited and corrected my tax return years after I originally filed -- can I still amend my Virginia return to claim a bigger credit for the extra tax I ended up owing that state?

Plain-English summary

A Virginia-resident married couple filed an amended 2016 Virginia return claiming a larger credit for income tax paid to "State A," after a State A audit changed their nonresident apportionment percentage. The Department initially denied the resulting refund, treating the amended return as filed outside the general statute of limitations for amending a Virginia return.

Virginia's general rule lets a taxpayer amend a return within three years of the original filing deadline -- but the statute carves out several exceptions for specific situations. One of them, Va. Code § 58.1-1823(v), gives a taxpayer one year from the "final determination of any change or correction" in their income tax liability in another state to file a Virginia amended return, capped at the amount of the resulting decrease in Virginia tax. Here, State A issued a notice of assessment on September 23, 2020, adjusting the couple's nonresident apportionment percentage. The couple contested that adjustment by filing an amended State A return reporting an even higher nonresident apportionment percentage than their original State A filing; State A accepted it and treated the original assessment as satisfied as of June 18, 2021. The couple had filed their amended Virginia return on October 6, 2020 -- less than a month after State A's original adjustment notice -- which the Department found comfortably inside the one-year window the Virginia exception allows.

The Department agreed the amended Virginia return was, in fact, timely under this special exception, and said it would process the refund as warranted. It reserved the right to independently verify the credit computation within the applicable review period, and noted that if it later adjusts the credit amount, it must fully explain that adjustment in writing, giving the couple a further 90 days to appeal if they believe any such adjustment was wrong.

What this means for you

Virginia residents whose return in another state gets audited or corrected years after the fact

If a change or correction to your tax liability in another state becomes final, you get a full year from that final determination -- not just the general three-year window from your original Virginia filing deadline -- to amend your Virginia return and adjust your credit for taxes paid to that state. This can rescue a Virginia refund claim that would otherwise look time-barred under the general rule.

Anyone contesting an out-of-state audit adjustment that affects apportionment or income sourcing

Don't wait to see how a contested out-of-state adjustment eventually gets resolved before amending your Virginia return -- this couple filed their Virginia amendment promptly after State A's original assessment notice, well before State A's own process concluded months later, and the Department still found it comfortably timely.

Taxpayers whose Virginia refund is capped by this exception

The refund available under this special one-year rule is limited to the decrease in Virginia tax actually attributable to the other state's change or correction -- it isn't a general reopening of your whole Virginia return for unrelated issues.

Common questions

Q: Another state corrected my tax return years after I filed -- can I still amend my Virginia return if the general three-year deadline has passed?
A: Yes, if you act within one year of that other state's final correction. Virginia's amended-return statute of limitations includes a specific exception for exactly this situation, letting you claim the resulting Virginia credit adjustment even after the general window closes.

Q: When does the one-year clock start if I contested the other state's proposed adjustment?
A: The statute measures from the "final determination" of the change or correction. Filing your Virginia amended return soon after the other state's assessment or adjustment notice -- as this couple did -- is a safe way to stay well within the one-year window regardless of exactly when that other state's process is later treated as final.

Q: Is the refund from this exception unlimited, or is it capped somehow?
A: It's capped at the amount of the decrease in your Virginia tax that's actually attributable to the other state's change or correction -- it's not a general reopening of unrelated issues on your Virginia return.

Citations and references

• Va. Code § 58.1-1823 (general three-year deadline to file an amended Virginia return, with statutory exceptions)
• Va. Code § 58.1-1823(v) (one-year exception from the final determination of a change or correction to another state's income tax, capped at the resulting Virginia tax decrease)

Subject

Administration : Statute of Limitations - Amended Return Refund, Correction or Audit by Another State

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-109

Original ruling text

June 9, 2022

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you seek correction of the denial of refund to * (the “Taxpayers”) for the taxable year ended December 31, 2016. I apologize for the delay in responding to your request.

FACTS

The Taxpayers, Virginia residents, filed an amended Virginia individual income tax return for the 2016 taxable year and claimed a greater amount of credit for income tax paid to another state as a result of an audit by * (State A). The Department denied the resulting refund on the basis that the amended return was filed outside of the statute of limitations. The Taxpayer appealed, asserting that their amended return was timely filed.

DETERMINATION

Generally, Virginia 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. Virginia Code § 58.1-1823, however, also includes a number of exceptions to the general rule when specific circumstances are present.

Under Virginia Code § 58.1-1823 (v), a taxpayer has “one year from the final determination of any change or correction in the income tax of the taxpayer for any other state, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such change or correction.”

The Taxpayers received a notice of assessment from State A on September 23, 2020, resulting from an adjustment to the nonresident apportionment percentage on their State A return. In response, the Taxpayers filed an amended State A return to contest the adjustment, which State A accepted and deemed the assessment to be satisfied as of June 18, 2021.

Because the amended nonresident return reported higher nonresident apportionment percentage than their original State A return, the Taxpayers filed an amended Virginia return on October 6, 2020, less than one month after receiving the State A correction letter and well within the one-year limitations period set forth in Virginia Code § 58.1-1823 (v).

Accordingly, the amended return will be processed as timely filed and a refund will be issued as warranted. The Department reserves the right to review the computation of the credit within the applicable statute of limitations for such review. If any adjustment is made to the amount of credit claimed, the adjustment must be fully explained and communicated to the Taxpayers in writing. If the credit is adjusted, the Taxpayers will have 90 days from the date of being notified of such adjustment within which to appeal, if they believe the adjustment was erroneous.

The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. 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/4017.Y