Can I use a Virginia assessment appeal to fix my own reporting mistakes on my original return, even if I agree the audit itself was correct?

Plain-English summary

Two affiliated corporations filed consolidated Virginia corporate income tax returns for 2012 and 2013. On audit, the Department removed certain subsidiaries from the consolidated group because they lacked Virginia income tax nexus, which changed the group's apportionment factors and net operating loss deductions. The taxpayers appealed — but not by disputing what the audit actually did. Instead, they agreed the subsidiary removals were correct, and raised three separate complaints about their own original returns: that some affiliates had erroneously sourced sales to Virginia, that yet another affiliate should also have been removed for lack of nexus, and that they'd made errors reporting net operating losses at the federal level.

The Tax Commissioner rejected the appeal on procedural grounds without reaching those merits. A § 58.1-1821 administrative appeal has to identify actual errors in the assessment — it's not a vehicle for a taxpayer to correct its own separate reporting mistakes that the audit never touched. Those kinds of self-identified errors belong in the amended-return process instead. But the ordinary three-year deadline to file an amended return had long since passed, and none of the statutory exceptions applied — including the "pay first, then amend within two years" option, which is itself limited to issues actually related to the assessment, not free-standing new corrections. A protective refund claim was similarly time-barred. Result: the assessments stood, in full, purely on procedural grounds.

What this means for you

Businesses appealing an audit assessment

When you appeal an assessment, focus specifically on what the auditor changed and why you think that change was wrong. If you've separately discovered that you made your own errors on the original return — sourcing mistakes, missed deductions, NOL computation errors — an assessment appeal is the wrong tool to fix them, even if you're appealing the same tax year for a different reason.

Watch your amended-return and protective-claim deadlines independently

Virginia's amended-return deadline (generally three years from the original filing deadline, with narrow exceptions) and protective-claim deadline run on their own clock, separate from any audit or appeal timeline. If you discover a self-reporting error, address it promptly through an amended return — don't wait for an unrelated audit or appeal to try to fold it in, because by the time that appeal is resolved, your amendment window may already be closed.

Accountants and tax professionals

This is a clean illustration of the boundary between an assessment appeal (§ 58.1-1821, targeting errors the Department made) and the amended-return/protective-claim processes (§§ 58.1-1823, -1824, targeting the taxpayer's own reporting errors). It's also a reminder that the "pay and amend within two years" exception in § 58.1-1823(iv) is narrower than it might sound — it's limited to issues connected to the assessment, not a general grace period for unrelated corrections.

Common questions

Q: I agree the auditor was right, but I found other mistakes on my own return from the same year — can I raise them in my appeal?
A: Not under this ruling. An assessment appeal must allege errors in the assessment itself; separate self-identified reporting errors need to go through the amended-return process, on its own deadline.

Q: What if the amended-return deadline has already passed?
A: Absent a specific statutory exception, you generally cannot correct the error at that point — even by paying the assessment and filing within the normal window, since that mechanism is limited to assessment-related issues.

Q: Does this ruling apply to my situation?
A: Not automatically. This is a published ruling based on this taxpayer's specific facts and the law as it stood in 2023; your deadlines and the nature of your dispute may differ.

Citations and references

• 23 VAC 10-20-160 (available remedies for a disputed assessment)
• Va. Code § 58.1-1821; 23 VAC 10-20-165 D 1 f (administrative appeal; must allege errors in the assessment)
• 23 VAC 10-20-160 A 3 (amended return for new/newly discovered facts)
• Va. Code § 58.1-1823, including the § 58.1-1823(iv) pay-and-amend exception (three-year amended-return deadline)
• Va. Code § 58.1-1824; 23 VAC 10-20-190 A 2 (three-year protective claim deadline)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-104

Original ruling text

August 31, 2023

Re: § 58.1-1821 Application: Corporate Income Tax

Dear *:

This will respond to your letter in which you seek correction of the corporate income tax assessments issued to your client, * and *** (the “Taxpayers”), for the taxable years ended December 31, 2012, and 2013, respectively. I apologize for the delay in responding to your correspondence.

FACTS

The Taxpayers filed consolidated Virginia corporate income tax returns for the taxable years at issue. Under audit, the Department removed certain subsidiaries of the Taxpayers from the consolidated returns on the basis that they lacked income tax nexus with Virginia. The removal of these entities resulted in adjustments to the groups’ apportionment factors and deductions for net operating losses (NOLs).

The Taxpayers appealed, contending that 1) certain affiliates erroneously sourced sales to Virginia; 2) another affiliate should have been removed from the consolidated returns because it had no Virginia sales and thus no nexus; and 3) the Taxpayers made numerous errors in reporting NOLs for federal income tax purposes.

DETERMINATION

Title 23 of the Virginia Administrative Code ( VAC) 10-20-160 sets forth potential remedies available to a taxpayer who believes that an assessment is erroneous. In this case, the Taxpayers chose to file an administrative appeal under Virginia Code § 58.1-1821. See Title 23 VAC 10-20-160 A 2. Such remedy “may be used to protest any or all issues connected with an assessment.” See id. Administrative appeals must, among other things, include a statement “setting forth each alleged error in the assessment, the grounds upon which the taxpayer relies and all facts relevant to the taxpayer’s contention.” See Title 23 VAC 10-20-165 D 1 f. The Taxpayers, however, did not allege any particular errors with the assessment. In fact, the Taxpayers agreed that the Department properly removed the subsidiaries from the consolidated returns. The issues raised by the Taxpayers, namely the Taxpayers’ own alleged errors in reporting Virginia sales and accounting for NOLs at the federal level, were not the subject of the audit.

Title 23 VAC 10-20-160 A 3 explains that the amended return process “may be used to amend a return based upon new or newly discovered facts such as errors discovered in the original return or a change in federal taxable income.” The issues described by the Taxpayers in their appeal clearly arose from the Taxpayers’ own alleged reporting errors on their original returns. Because no alleged errors were made against the audit assessment, the Taxpayers’ filing does not qualify as an appeal under Virginia Code § 58.1-1821.

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. In this case, the general deadline has long since passed. However, there a number of exceptions to the general rule when specific circumstances are present. At this time, none of the circumstances exist that would allow the Taxpayers to file amended returns under any of the exceptions set forth in Virginia Code § 58.1-1823. While the Taxpayers could pay the assessments and file amended returns within two years as permitted by Virginia Code § 58.1-1823(iv), such returns must be limited to issues related solely to the assessments. As explained above, however, the issues raised by the Taxpayers in this appeal are separate and distinct from those raised in the audit.

Likewise, the three year period for filing a protective claim for refund under Virginia Code § 58.1-1824 has long since expired, even if the Taxpayers had paid the assessments, which they have not. In any event, the Taxpayers would have to have alleged particular errors in the assessments for which they were filing a protective claim, and as indicated above, the Taxpayers are not actually disputing the basis of the assessments. See Title 23 VAC 10-20-190 A 2.

Therefore, the assessments are upheld and remain due and payable. The Taxpayers will receive updated bills, which will include accrued interest to date. The Taxpayers should remit payment within 30 days to avoid the accrual of additional interest and possible collections actions.

The Code of Virginia sections and regulations 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 (804) ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1209m