My e-filed corporate return was rejected and refiled a day late because I forgot a schedule -- does that shorten my three years to file an amended return, and do I have to add back interest on a loan I used to buy stock?

Plain-English summary

A corporation paid interest to two affiliated lenders on loans and, following Virginia's standard rule requiring related-party interest to be added back to income, added the expense back on its original 2013-2015 Virginia corporate returns. It then filed amended returns for all three years claiming an exception — that the add-back shouldn't apply because the loans were unrelated to intangible property. On audit, the Department denied the 2013 refund outright as untimely, and separately asked for more information about the 2014-2015 claims; when no answer came, those were denied too, and the corporation appealed both issues.

Issue 1 — was the amended 2013 return filed in time? Virginia Code § 58.1-453 lets a corporation elect an extended filing due date, and § 58.1-1823 then gives three years from that (extended) due date to file an amended return. The corporation electronically filed its 2013 return on its extended due date, October 15, 2014 — but Virginia's e-filing system automatically rejected it for missing a required schedule (Schedule AB, detailing related-entity add-backs), and didn't accept the corrected filing until October 16, 2014, one day late. Treated at face value, that would push the amended-return deadline back to April 2017, making the corporation's October 2017 amended filing untimely.

Because this was a "case of first impression" for Virginia, the Department borrowed a federal framework: the U.S. Tax Court's Fowler v. Commissioner decision (a 2020 case where the IRS's e-filing system similarly rejected a return, this time for a missing IP PIN, but the original submission date still counted), which in turn applies the "Beard formulation" test (from Beard v. Commissioner) for what makes a document a valid, timely "return": (1) it purports to be a return with enough data to calculate the tax liability; (2) the taxpayer made an honest, reasonable attempt to comply with the law; and (3) it was signed under penalty of perjury. The Department found the second and third elements satisfied here, and — critically — found the FIRST element satisfied too: even without the missing Schedule AB, the corporation's original filing included a different schedule (Schedule 500ADJ) carrying the same net add-back figure, meaning enough data existed to calculate the tax liability. Citing IRS guidance that an otherwise-complete return missing a required schedule or attachment (like a W-2) still starts the statute-of-limitations clock, the Department concluded the corporation's original 2013 return counted as timely filed on October 15, 2014 — making its October 2017 amended return timely under the three-year window.

Issue 2 — is stock "intangible property" for the interest add-back? The corporation had borrowed from its affiliates specifically to buy another company's stock. Virginia Code § 58.1-402 B 9 requires adding back related-party interest expense, but § 58.1-302 limits that add-back to interest connected with "intangible property" — defined as patents, trade names, trademarks, service marks, copyrights, and "similar types of intangible assets." Since the Department had never squarely addressed whether stock counts as this kind of intangible asset, it applied the legal doctrine of ejusdem generis ("of the same kind"): when a specific list is followed by a general catch-all phrase, the catch-all is limited to things resembling the specific items listed. Stock isn't intellectual property and isn't similar to the listed examples, so it falls outside the statute's definition of intangible property — meaning the interest add-back didn't apply to these loans at all.

Result: the corporation received full refunds, with interest, for all three taxable years.

What this means for you

Corporations whose e-filed Virginia return gets rejected for a missing schedule

If your original submission — even setting the missing piece aside — already contained enough information to calculate your tax liability, the Department may treat your ORIGINAL submission date as the timely filing date for purposes of the three-year amended-return window, not the later date you actually got accepted.

Corporations that add back interest paid to affiliates on stock-purchase loans

Virginia's related-party interest add-back applies only to interest tied to "intangible property" — patents, trademarks, copyrights, and similar intellectual property. Interest on a loan used to buy STOCK isn't covered by that add-back, so consider whether you've been over-adding-back interest expense on affiliate loans used for stock acquisitions.

Accountants and tax professionals reviewing amended-return deadlines

Where an e-filed return was initially rejected and corrected within days, check whether the original submission otherwise contained sufficient data to compute the tax liability — that may preserve the original filing date under this ruling's Beard-formulation analysis, even though Virginia's own system logged a later "accepted" date.

Common questions

Q: My e-filed corporate return was rejected for a missing schedule and I refiled the next day — does the amended-return clock start from the original date or the later accepted date?
A: It can still be the original date, if your initial filing otherwise had enough information to calculate your tax liability — as it did here, through a different schedule carrying the same figures.

Q: Do I have to add back interest paid to an affiliate on a loan I used to buy another company's stock?
A: Not under Virginia's related-party interest add-back statute, according to this ruling — stock isn't "intangible property" as that term is defined for the add-back, since it isn't intellectual property or similar to the specific examples listed in the statute.

Q: What test does Virginia use to decide if a rejected e-filed return still counts as timely?
A: The Department borrowed the federal "Beard formulation": the document must purport to be a return with sufficient data to calculate tax liability, reflect an honest and reasonable attempt to comply with the law, and be signed under penalty of perjury.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-453 — election of an extended due date for filing a corporate income tax return
• Va. Code § 58.1-1823 — three-year limitations period to file an amended return, measured from the original or extended due date
• Va. Code § 58.1-402 B 9 — add-back of interest expense paid to a related member, subject to exceptions
• Va. Code § 58.1-302 — definition of "interest expenses and costs" and "intangible property" for the related-party add-back

Case law:

• Fowler v. Commissioner, 155 T.C. No. 7 (2020) — a federal return rejected by the IRS e-filing system for a missing IP PIN still counted as filed on the original submission date
• Beard v. Commissioner, 82 T.C. 766 (1984) — the four-part test for what makes a document a valid "return"
• Blount v. Commissioner, 86 T.C. 383 (1986) — an otherwise-complete return missing an attached W-2 still starts the statute of limitations
• Gates & Son Co. v. Richmond, 103 Va. 702 (1905) — the ejusdem generis doctrine (general terms following a specific list are limited to things of the same kind)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-129

Original ruling text

December 11, 2024

Re: § 58.1-1821 Application: Corporate Income Tax

Dear *:

This will reply to your letter in which you seek a refund of corporate income tax paid by * (the “Taxpayer”) for the taxable years ended December 31, 2013, January 3, 2015, and January 2, 2016.

FACTS

The Taxpayer paid interest to affiliated entities, * (Affiliate A) and *** (Affiliate B) for loans, during the taxable years at issue. It added-back the interest expense on its original 2013 through 2015 Virginia corporate income tax returns. The Taxpayer then filed amended returns for the 2013 through 2015 taxable years and claimed an exception to the add-back requirement for all of the interest deductions on the grounds that the loans were unrelated to intangible property.

Under audit, the Department disallowed the refund on the amended return filed for the 2013 taxable year because it was not filed within the three-year limitations period. In addition, the Department requested additional information from the Taxpayer to explain why the interest payments on the loans were not related to intangible property. When no answer was provided, the Department denied the Taxpayer’s refund request for the 2014 and 2015 taxable years. The Taxpayer appealed, contending that it should not be required to add back the interest expense because it is unrelated to intangible property.

DETERMINATION

2013 Taxable Year

Virginia Code § 58.1-453 allows taxpayers that are required to file corporate income tax returns to elect an extended due date six months after the original due date or 30 days after the extended due date for filing the federal income tax return, whichever is later. 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. 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.

When a return has been filed on or before an original or extended due date, whether such extension was granted by the Department or automatically, the general rule is that an amended return must be filed within three years of the original or extended due date, as applicable. See Virginia Code § 58.1-1823.

A review of the Department’s records indicates that the Taxpayer electronically filed its original 2013 Virginia income tax return on its extended due date of October 15, 2014. The Department’s electronic filing system, however, automatically rejected the return because the Taxpayer had not included a Schedule of Related Entity Add Backs and Exceptions, Schedule AB. The Department accepted the return on October 16, 2014, once the Taxpayer submitted the schedule.

Because the return was not considered to have been filed until October 16, 2014, a day past the extended due date, the Taxpayer was treated as if no extension had been granted. As a result, the last day to file the amended return reverted to April 17, 2017, or three years from the original due date of April 15, 2014 (April 15, 2017, was a Saturday). The Department did not accept the Taxpayer’s amended 2013 return because it was filed on October 13, 2017, well after the April 17, 2017 due date.

The issue, therefore, becomes whether the original return should be considered to have been timely filed even though a schedule was mistakenly omitted from the filing. This issue appears to be one of first impression for the Department. In the absence of any policy precedents applicable to Virginia income tax returns specifically, the Department believes it is appropriate to determine what constitutes a valid return for federal income tax purposes and apply that analysis to the case at hand.

A recent United States Tax Court case is instructive. In Fowler v. Commissioner , 155 T.C. No. 7 (2020), the taxpayer electronically filed his federal income tax return in October 2014 but failed to include his Identity Protection Personal Identification Number (IP PIN). As a result, the IRS electronic filing system rejected the return. The taxpayer refiled the return with the PIN in April 2015. The IRS subsequently issued a notice of deficiency to the Taxpayer in April 2018. The taxpayer argued that the filing of the first return triggered the running of the statute of limitations. The court agreed, holding that the taxpayer had satisfied the two requirements for the filing of a return to trigger the running of the statute of limitations: 1) the document that the taxpayer submitted was a required return, and 2) the taxpayer properly filed the return. Although the instant case does not involve an issue with the statute of limitations on assessments, the Department believes the same analysis can be used to establish whether a return was timely filed for purposes of determining the limitations period for filing an amended return.

In deciding the first element, the court turned to the test from Beard v. Commissioner , 82 T.C. 766 (1984), aff’d 793 F.2d 139 (6th Circuit, 1986). Commonly known as the “ Beard formulation ,” the test requires that 1) the document purport to be a return and provide sufficient data to calculate the tax liability; 2) the taxpayer make an honest and reasonable attempt to satisfy the requirements of the tax law; and 3) the taxpayer execute the document under penalties of perjury. In Fowler , the court focused primarily on the impact of the omission of the IP PIN on the third element. In this case, however, the Department concedes that the second and third elements of the Beard test were satisfied. The remaining question is whether the Taxpayer provided sufficient data to calculate the tax liability despite the omission of Schedule AB.

Schedule 500AB details payments that a taxpayer makes to related entities that are subject to add-back under Virginia Code § 58.1-402 B 8 unless a statutory exception applies. The net addition reported on this schedule carries over to another schedule, Schedule 500ADJ, that details all additions to, and subtractions from, a corporation’s federal taxable income in computing its Virginia taxable income. In this case, the Taxpayer included Schedule 500ADJ in its first filing. This schedule included the net addition as computed on Schedule 500AB. Although it was not possible to see the per entity detail of how the add-back additions were computed until the Taxpayer included its Schedule AB, the Taxpayer’s first filing included all the figures needed to compute its Virginia income tax liability. In the Department’s opinion, therefore, the Taxpayer’s return satisfied the requirements of the Beard formulation. This conclusion is supported by prior IRS advice that an otherwise complete return which lacks a required schedule is sufficient to begin the statute of limitations on assessment. See SCA 2000010046 (1/12/2000), citing Blount v. Commissioner , 86 T.C. 383 (1986), in which the Tax Court found that the omission of an attached W-2 did not prevent the statute of limitations on assessments from running.

The second element of the test to determine whether a return was properly filed to trigger the running of a statute of limitations, namely whether the taxpayer properly filed the return, generally refers to whether it was physically delivered to the correct IRS office. As applied to electronic filing, the court in Fowler determined that there was no real dispute that the electronic filing had been properly filed with the IRS. The taxpayer not only submitted the return to the IRS electronic filing system, but the system had reviewed and rejected it. The facts in the instant case are the same. The Taxpayer timely submitted the return electronically, and the Department’s system reviewed and rejected it for lacking a schedule. Accordingly, in the Department’s opinion, the Taxpayer’s return should be considered to have been properly filed for purposes of establishing whether the Taxpayer timely filed its 2013 return on extension.

Interest Add-back

Virginia Code § 58.1 402 B 9 provides that there shall be added back to the extent excluded from federal taxable income:

[T]he amount of any interest expenses and costs directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with one or more related members to the extent such expenses and costs were deductible or deducted in computing federal taxable income for Virginia purposes.

For income tax purposes, Virginia Code § 58.1 302 defines “interest expenses and costs” as:

[A]mounts directly or indirectly allowed as deductions under Section 163 of the Internal Revenue Code for purposes of determining taxable income under the Internal Revenue Code to the extent such expenses and cost are directly or indirectly for, related to, or in connection with the direct or indirect acquisition, use, maintenance, management, ownership, sale, exchange, lease, transfer, or disposition of intangible property . (Emphasis added).

The Taxpayer paid interest to Affiliate A and B on unsecured loans in order to purchase the stock of a target company. It contends that the interest expense it incurred is not required to be added-back pursuant to Virginia Code § 58.1 402 B 9 a because stock is not intangible property as defined by Virginia Code § 58.1 302.

The term “intangible property” is defined in Virginia Code § 58.1 302 to mean patents, patent applications, trade names, trademarks, service marks, copyrights, and similar types of intangible assets. The definition of intangible property lists several types of intellectual property “and similar types of intangible assets.” The issue is whether stock is considered a similar type of intangible asset. The Department has not specifically addressed whether stock is considered intangible property for purposes of the interest expense add-back.

Under the legal doctrine of ejusdem generis (a Latin phrase which means “of the same kind”), when general words follow particular and specific words, the general words must be confined to things of the same kind. See Gates & Son Co. v. Richmond , 103 Va. 702, 49 S.E.2d 965 (1905). See also Public Document (P.D.) 20-4 (1/7/2020). In this case, the definition of intangible property for purposes of the interest add-back at issue includes a specific list of kinds of intellectual property. Stock is not intellectual property or otherwise like the listed items. The interest add-back provisions of Virginia Code § 58.1-402 B 9, therefore, do not apply in this case.

CONCLUSION

The Department finds that the Taxpayer’s original 2013 return was timely filed by the extended due date of October 15, 2014. Therefore, the Taxpayer’s amended 2013 return was timely filed on October 13, 2017, prior to the expiration of the general three-year limitations period set forth in Virginia Code § 58.1-1823.

In addition, the Department finds that the Taxpayer’s interest expenses derived from the payment of loan interest in order to purchase stock was not related to the acquisition of intangible property as defined for purposes of the interest expense add-back under Virginia Code § 58.1-402 B 9. As such, the Taxpayer was not required to add back the interest expenses.

The Taxpayer’s amended returns for the taxable years ended December 31, 2013, January 3, 2015, and January 2, 2016, therefore, will be processed consistent with this determination and appropriate refunds will be issued, to include applicable refund interest.

The Code of Virginia sections cited are available online at law.lis.virginia.gov. The public document cited is available 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 and Legal Affairs, Tax Adjudication and Resolution Division, at ***.

Sincerely,

Kristin L. Collins

Deputy Tax Commissioner

Commonwealth of Virginia

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