Does Virginia's current 7-year statute of limitations on tax collections apply to old assessments from the 1990s, and does a 2021 bank lien on a decades-old debt mean the Department missed its deadline?

Plain-English summary

A taxpayer never filed Virginia individual income tax returns for 1987 through 1993, so the Department assessed him -- the earliest assessment dated March 10, 1994, the latest March 22, 1996. In 2004, the Department filed liens with multiple financial institutions to try to collect (all came back showing no accounts or assets, so nothing was actually collected). In September 2021, the Department filed another such lien. The taxpayer appealed, arguing that collection was barred because Virginia's statute of limitations on collections is seven years, and far more than seven years had passed since the 1990s assessments.

The Department first cleared up a mechanism mix-up: the taxpayer believed the 2021 lien was a "memorandum of lien" filed with a circuit court under Va. Code § 58.1-1805 (which requires notice, and the taxpayer said court records showed no such lien existed) -- but the actual lien was filed with a third-party financial institution under a DIFFERENT statute, Va. Code § 58.1-1804, so the notice argument didn't apply to what actually happened. On the real question -- timing -- the Department explained that Virginia's CURRENT seven-year collection limitations period (Va. Code § 58.1-1802.1) only governs assessments made ON OR AFTER July 1, 2016. These assessments were made in 1994-1996, so the current seven-year rule simply doesn't reach them. Instead, the law in effect back when these assessments were issued gave the Department 20 YEARS to collect, and its longstanding policy was that so long as SOME collection action was taken within that 20-year window, collection could continue until the debt was fully paid, even after the 20 years technically ran. Because the Department filed the first lien in 2004 -- comfortably within 20 years of the mid-1990s assessment dates -- that qualified as a timely collection action, meaning the Department could keep pursuing collection indefinitely from that point on, including the 2021 lien decades later. The 1987-1993 assessments therefore remained fully collectible, and updated bills with resumed collection action were ordered.

What this means for you

Anyone with very old (pre-2016) Virginia tax assessments still being pursued

Don't assume today's 7-year collection statute of limitations protects you -- it applies only to assessments made on or after July 1, 2016. Older assessments are governed by whatever limitations period was in effect when THEY were made (20 years, for assessments from the 1990s-2000s era before the current rule took effect), and if the Department took any qualifying collection action (like filing a lien) within that longer window, collection can continue indefinitely afterward.

Anyone disputing the validity of a lien on old tax debt

Check which specific lien statute was actually used -- a lien filed with a third-party financial institution under Va. Code § 58.1-1804 is a different mechanism, with different requirements, than a memorandum of lien filed with a circuit court under § 58.1-1805. Arguments based on the wrong statute's notice requirements won't succeed.

Accountants and tax professionals researching a client's old tax liabilities

Determine the assessment date first, then identify which limitations regime applied AT THAT TIME (the statute has been amended multiple times) before advising a client that an old liability is time-barred. A single timely collection action within the applicable window (even decades ago) can keep the debt collectible indefinitely under the Department's longstanding policy.

Common questions

Q: Does Virginia's current 7-year collection statute of limitations apply to old tax assessments from the 1990s?
A: No -- the current 7-year period (Va. Code § 58.1-1802.1) applies only to assessments made on or after July 1, 2016. Older assessments are governed by the limitations period in effect when they were made.

Q: What was Virginia's collection statute of limitations before the current 7-year rule?
A: 20 years, prior to a 2010 law change -- and this applied to the 1994-1996 assessments at issue in this ruling.

Q: If the Department takes a collection action within the limitations period, does collection have to stop once that period technically expires?
A: No -- under the Department's longstanding policy for pre-2016 assessments, so long as a collection action was initiated within the applicable limitations period, collection could continue until the assessment was fully satisfied, even after that period had run.

Q: What's the difference between a lien filed with a financial institution and a memorandum of lien filed with a circuit court?
A: They're different statutory mechanisms (Va. Code § 58.1-1804 versus § 58.1-1805, respectively) with different procedural requirements; arguments about one don't necessarily apply to the other.

Citations and references

• Va. Code § 58.1-1802.1 (current 7-year collection limitations period)
• Va. Code § 58.1-1801.1 A (effective date: assessments on/after 7/1/2016)
• Va. Code § 58.1-1804 (liens filed with third-party financial institutions)
• Va. Code § 58.1-1805 (memoranda of liens filed with circuit courts)
• P.D. 14-177 (10/14/2014) (timely collection action within the limitations period preserves collectibility indefinitely)

Subject

Administration: Assessment - Statute of Limitations On Collections, Liens

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-27

Original ruling text

March 15, 2023

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you dispute the collectibility of individual income tax assessments issued to * (the “Taxpayer”) for the taxable years ended December 31, 1987 through 1993.

FACTS

The Taxpayer did not file individual income tax returns for the taxable years 1987 through 1993. As a result, the Department issued assessments. Liens for the collection of the delinquent taxes were filed with multiple financial institutions beginning in 2004, which was within 20 years of the assessments that were issued between 1994 and 1996. In addition, a lien to collect the taxes due was filed with a financial institution in September 2021. The Department’s records show that all of the financial institutions served with the liens indicated that the Taxpayer did not have an account or any assets. As such, no money was collected and applied to any of the Taxpayer’s individual income tax assessments. The Taxpayer appeals, and requests that any liens placed on his accounts be released because the collectibility of the liabilities are beyond the seven year statute of limitations.

DETERMINATION

Liens

The Taxpayer believes the lien at issue was filed under the authority of Virginia Code § 58.1-1805, which governs memoranda of liens filed with circuit courts. The Taxpayer argues that because he was not given notice as required by the statute only and because a search of court records indicates no lien was filed, the Department only had seven years from the date of the assessments to collect. In this case, however, the Department filed a lien with a third party financial institution pursuant to Virginia Code § 58.1-1804, not Virginia Code § 58.1-1805. Thus, the question becomes whether such lien was timely filed.

Statutes of Limitations on Collections

Although Virginia Code § 58.1-1802.1 currently limits the Department’s collection actions to seven years from the date of assessment, even if collection action has been initiated within the seven-year period, the statute of limitations has been amended several times due to legislative action. The current statute of limitations applies only to assessments made on or after July 1, 2016. See Virginia Code § 58.1-1801.1 A. Because the assessments at issue were made prior to that date, the statute as currently written does not apply to the Taxpayer’s assessments.

The earliest assessment for the taxable years at issue was March 10, 1994. The latest assessment was issued on March 22, 1996. Prior to a 2010 law change, the statute of limitations for collection actions was 20 years. As such, the limitation period was 20 years at the time the assessments were issued. For assessments made prior to the 2016 amendments to the statute, it was the Department’s policy that, so long as any collection action was initiated or made before the end of the period of limitations, collection could continue until the assessment was satisfied. A collection effort with regard to a taxpayer commences when it levies an assessment and encompasses all means of collecting taxes enumerated under Virginia statutes. In general, some form of collection action is usually taken early within the limitations period. As such, so long as the Department instituted a collection action within 20 years of the assessment dates, the assessments remained subject to collection. See Public Document (P.D.) 14-177 (10/14/2014).

The Department’s records show that liens were filed under the authority of Virginia Code § 58.1-1804 against the Taxpayer in 2004 in order to collect the delinquent taxes. These liens qualify as collection actions and were filed well before the 20 year statute of limitations for collections expired. The Department, therefore, could continue to take collections actions as long as they were otherwise made in accordance with law.

Based on the foregoing, the assessments for the taxable years ended December 31,1987 through 1993 remain collectable by the Department and the Taxpayer’s request for relief cannot be granted. Updated bills with accrued interest will be issued and collection actions on any unpaid balance will resume immediately.

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/4132.B

Related Documents

14-177

15-15

18-38