My late father never filed Virginia income tax returns for several years going back to the 1990s, and the Department abated one assessment and then issued a brand-new one for the same year -- can his estate get all these old assessments declared uncollectable, and was that replacement assessment even valid?

Plain-English summary

A now-deceased taxpayer never filed Virginia individual income tax returns for the 1997, 1998, 1999, 2000, 2006, 2007, 2010, and 2011 taxable years, and the Department issued assessments for each. After the taxpayer died in 2021, the estate asked the Department to rule that these decades-old assessments were no longer collectable -- arguing the 7-year statute of limitations had expired with no liens or legal action taken to extend it. The estate also questioned why the Department issued a brand-new assessment for the 2007 taxable year in 2022, after an earlier 2007 assessment had been abated.

A history lesson in the collection statute of limitations. As in similar rulings, the Department traced how the collection deadline has changed: no limit before 1990, then 20 years starting in 1990, cut to 10 years in 2010, then to 7 years in 2012. A newer wrinkle noted here: in the 2023 legislative session, § 58.1-1802.1 was amended again to suspend the running of the collection statute of limitations while any administrative or judicial proceeding contesting the assessment is pending -- relevant to assessments going forward, though the core question in this ruling was about whether collection action had timely started under the older, pre-2016 rules.

The estate's factual claim didn't hold up. Contrary to the estate's assertion that no liens or legal actions were ever taken, Department records showed liens filed against the taxpayer in 2008 and 2009, consolidated bill notices sent annually from 2009 through 2014 and again in 2016, and Treasury Offset letters (redirecting federal refunds to state debt) issued in 2011, 2012, 2014, and 2016. For the 1997-2006 assessments (issued by May 2009, governed by the then-applicable 20-year period) and the 2010-2011 assessments (issued in 2013 and 2014, governed by the 7-year period), these collection actions all started well within the applicable deadline -- so under the Department's rule that timely-initiated collection can continue until an assessment is paid, all of these assessments remained collectible.

The replacement 2007 assessment. Virginia procedure doesn't let the Department simply increase an existing assessment (other than adding interest) -- if it needs to correct an assessment upward, it must issue an entirely new, separate second assessment instead (23 VAC 10-20-160 D 6). Here, an original 2007 assessment (issued in 2010) was abated, and a new one was issued in November 2022 after further review. Because no 2007 return had ever been filed, Virginia law allows an income tax assessment for that year to be made "at any time" -- there's no expiration on assessing tax for a year with no return on file (Va. Code § 58.1-312 A). So the 2022 replacement assessment was timely and valid.

Outcome. All the assessments -- for 1997 through 2000, 2006, 2007 (as re-issued in 2022), 2010, and 2011 -- remained due and collectible, with updated bills and resumed collection action to follow.

What this means for you

Estates or family members dealing with a deceased person's old, unfiled-return tax debt

Don't assume decades-old unfiled-return assessments have automatically expired -- check the Department's actual collection history for liens, bill notices, and Treasury Offset actions, since any one of those, timely initiated, can keep a pre-2016 assessment alive indefinitely under the Department's rule.

Anyone who never filed a return for a particular tax year

There's no time limit on when the Department can first assess tax for a year with no return filed at all (Va. Code § 58.1-312 A) -- unlike the ordinary 3-year assessment deadline that applies once a return has been filed.

Anyone confused by a "new" assessment replacing an abated one for the same year

If the Department needs to increase what you owe for a year (beyond adding interest), Virginia procedure requires it to issue a fresh, separate assessment rather than simply revising the old one -- that's a normal, valid procedural step, not a sign of an error.

Common questions

Q: Does Virginia's 7-year collection statute of limitations apply to my decades-old unfiled-return assessment?
A: It depends on when the assessment was made. Assessments made before July 1, 2016 are governed by whatever limitations period (20, 10, or 7 years) applied at the time, not the current version of the statute.

Q: What counts as a timely "collection action" that keeps an old assessment alive?
A: Liens, consolidated bill notices, and Treasury Offset Program letters all count -- any one of them, initiated within the applicable limitations period, is generally enough.

Q: Can the Department assess me for a tax year in which I never filed a return, no matter how long ago?
A: Yes -- Virginia law allows an assessment "at any time" when no return was ever filed for that year, with no expiration on that authority.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-1802.1 -- statute of limitations on Department collection actions (as amended over time, including the 2023 suspension during pending contests)
• Va. Code § 58.1-1801.1 A -- the current statute of limitations applies only to assessments made on or after July 1, 2016
• 23 VAC 10-20-160 D 6 -- the Department corrects an assessment upward (other than interest) by issuing a new second assessment, not by increasing the original
• Va. Code § 58.1-312 A -- income tax may be assessed at any time if no return was filed

Prior rulings referenced (described here, not linked): P.D. 14-177 (10/14/2014) and P.D. 23-27 (3/15/2023) -- the Department's longstanding interpretation that timely-initiated collection action keeps a pre-2016 assessment collectible until satisfied.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-9

Original ruling text

February 28, 2024

Re: Request for a Ruling: Individual Income Tax

Dear *:

This will reply to your letter in which you seek a ruling regarding the collectibility of individual income tax assessments issued to * (the “Decedent”) for the taxable years ended December 31, 1997, 1998, 1999, 2000, 2006, 2007, 2010 and 2011.

FACTS

The Decedent did not file individual income tax returns for the taxable years ended December 31, 1997, 1998, 1999, 2000, 2006, 2007, 2010 and 2011. As a result, the Department issued assessments. The Decedent died in 2021.

The Estate of * (the “Taxpayer”) seeks a ruling that these assessments are not collectable because the seven year statute of limitations has expired and no liens have been filed or legal actions taken that might extend the collections period. Further, the Taxpayer questions why the original assessment for the taxable year ended December 31, 2007, was abated and another assessment for the 2007 taxable year was issued.

RULING

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.

Until 1990, there was no limitation on the Department’s ability to collect assessments. In 1990, legislation was passed that required the Department to institute collection action within 20 years from the date of the assessment. This period of limitations was reduced from 20 years to 10 years from the date of assessment in 2010 and from 10 years to seven years in 2012. Since some form of collection action was usually initiated within the seven-year limitations period, most assessments remained collectible until satisfied. In 2016, legislation was enacted that required the Department to cease all collection actions seven years after an assessment was made, even if the collection action, with certain limited exceptions, had been initiated before the expiration of the seven year period. In the 2023 legislative session, Virginia Code § 58.1-1802.1 was again amended to suspend the running of the statute of limitations on collections actions while any administrative or judicial proceedings contesting the assessment are pending.

For assessments made prior to the 2016 amendments, the Department’s interpretation of the statute was 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 for the assessments issued for the 1997 through 2006 taxable years and within seven years for the assessments issued for the 2010 and 2011 taxable years, the assessments remained subject to collection. See Public Document (P.D.) 14-177 (10/14/2014) and P.D. 23-27 (3/15/2023).

The assessments for the 1997 through 2006 taxable years were all issued on or before May 2009. The limitation period was 20 years at the time the assessments were issued for the 1997 through 2006 taxable years. The Department’s records show that the Decedent called the collections unit of the Department in 2008 and 2009. Contrary to the Taxpayer’s assertions, liens were also filed against the Decedent in 2008 and 2009. Further, consolidated bill notices which are issued by the Department after the initial assessment, were sent to the Decedent each year from 2009 through 2014 and again in 2016. In addition, Treasury Offset letters, which allow federal income tax refunds to be used to offset Virginia income tax liability, were issued to the Decedent in 2011, 2012, 2014 and 2016. All of these collection actions were made well before the 20 year statute of limitations for the assessments issued for the 1997 through 2006 taxable years. Thus, these assessments remain due and payable and eligible for collection action by the Department.

The assessments issued for the 2010 and 2011 taxable years were issued in May 2013 and May 2014, respectively requiring collection action to begin within seven years. These taxable years would have been included in the consolidated bill notices which are issued by the Department after the initial assessment, were sent to the Decedent in 2014 and 2016 and the Treasury Offset letters issued to the Decedent in 2014 and 2016. Again, these actions were initiated with in the seven year statute of limitations for the assessments applicable to the taxable years at issue. The Department, therefore, could continue to take collections actions as long as they were otherwise made in accordance with law.

2007 Assessment

The Department issued an assessment for the 2007 taxable year in July 2010. The assessment was subsequently abated. After review, the Department issued another assessment for the 2007 taxable year in November 2022. The Taxpayer questions whether this new assessment is valid. Title 23 of the Virginia Administrative Code (VAC) 10-20-160 D 6 provides that the Department will not, with the exception of interest, correct an assessment by increasing the amount of liability. Rather, the Department will make a second assessment unless the period for assessing additional tax has expired. Under Virginia Code § 58.1-312 A, income tax may be assessed at any time if no return was filed. In this case, the Department issued a second assessment for the 2007 taxable year after abating the first assessment. The assessment was timely issued because no return had ever been filed for the 2007 taxable year.

CONCLUSION

Based on the foregoing, the assessments for the for the taxable years ended December 31, 1997, 1998, 1999, 2000, 2006, 2007, 2010 and 2011 remain collectable by the Department. In addition, the assessment issued for the 2007 taxable year in 2022 remains due. Accordingly, 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 documents 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/4511.B

Related Documents

14-177

23-27