February 28, 2024
Re: § 58.1-1821 Appeal: Individual Income Tax
Dear *****:
This will respond to your letter in which you seek correction of the individual income tax assessments issued to ***** (the “Taxpayer”) for the taxable years ended December 31, 2006, 2007, 2010, 2011 and 2015. I apologize for the delay in responding to your appeal.
FACTS
The Department issued assessments to the Taxpayer between July 2009 and September 2018 for failure to file Virginia individual income tax returns. The Taxpayer did not initially appeal the assessments. The Taxpayer subsequently contacted the Department in May 2021 to inquire about the assessments. She stated that she should not have been assessed tax because she was a resident of ***** (State A). The Department’s auditor requested documentation to substantiate her State A residency and the Taxpayer submitted further information. No adjustments to the assessments were made by the auditor. Instead, in June 2022, the auditor instructed the Taxpayer to file an appeal or make an offer based on doubtful collectability. Pursuant to this instruction, the Taxpayer appealed the assessments, contending that she was a resident of ***** (State A).
DETERMINATION
Applicable Statute of Limitations
The Taxpayer’s history of having assessments issued after failing to file returns raises several different issues with respect to statutes of limitations. Each of these limitations periods will be addressed in turn.
Deadlines for Filing Appeals
Virginia Code § 58.1-1821 states, “Any person assessed with any tax administered by the Department of Taxation may, within 90 days from the date of such assessment, apply for relief to the Tax Commissioner. Such application shall be in the form prescribed by the Department and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayers contention.” Pursuant to Virginia Code § 58.1-1821 and Title 23 of the Virginia Administrative Code (VAC) 10-20-165, a complete appeal must be filed with the Department within 90 days from the date of assessment. In addition, Virginia Code § 58.1-1820 provides that assessments made by the Department are deemed to be made when a written notice of assessment is mailed to a taxpayer at her last known address.
The most recent assessment, which was for the 2015 taxable year, was issued on September 19, 2018. The Taxpayer filed the present appeal with the Department by facsimile dated June 15, 2022, well after the 90 day statute of limitations had expired for any of the assessments at issue.
Protective Claim
Virginia Code § 58.1-1824 provides that “[a]ny person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing a claim for refund with the Tax Commissioner. . . within three years of the date such tax was assessed.” Virginia Code § 58.1-1824, therefore, expressly limits the right to file a protective claim to cases in which both the filing of the claim and the payment of the assessment occurred within three years of the assessment. See Public Document (P.D.) 86-224 (11/3/1986). In addition, all assessed taxes, penalties, and accrued interest for the year or years subject to the request must be paid in full before a taxpayer may file a protective claim. See 23 VAC 10-20-190 A 1.
To make a protective claim, the last day for payment of any of the assessments at issue was September 19, 2021, three years after the assessment was issued for the 2015 taxable year. No payments, however, have been made towards any of the assessments. As such, the Taxpayer could not appeal her assessments as protective claims under Virginia Code § 58.1-1824.
Reopening Audits
The Department’s auditor instructed the Taxpayer by phone on June 22, 2022, to file an appeal or discuss repayment options. Based on the information provided, if the auditor determined the assessments were in error, they had the authority to adjust the assessments unless prohibited to do so by the statute of limitations. Based on the auditor’s actions, the issue becomes whether the Taxpayer now had another 90 days, or three years if the assessments were paid, in which to file an appeal from the auditor’s June 2022 telephone conversation.
As stated above, Virginia Code § 58.1-1821 and Virginia Code § 58.1-1824 provide an administrative process that allows taxpayers to appeal assessments or make protective claims for refunds. An assessment is a determination of the amount of tax, including additional or omitted tax that is due. See 23 VAC 10-20-165 A. The denial of a refund claim is also deemed to be an assessment. Id. The auditor’s June 2022 instruction to file an appeal was not an assessment or a new final determination that would have created a new right to file an appeal.
Further, because the Department’s administrative remedies are limited to those allowed under Virginia Code § 58.1-1821 and Virginia Code § 58.1-1824, the longest period of time that a matter could have been raised for adjudication through the Department’s appeals process was three years from the date of assessment. As such, the auditor acted outside their authority when they instructed the taxpayer to file an appeal.
CONCLUSION
While the Department encourages the audit staff to resolve tax liability issues in order to preclude taxpayers from having to go through the administrative appeals process, the Department is limited by statutory periods under which a taxpayer can pursue an administrative remedy with the agency.
In deference to these statutory limitations, the assessments issued for taxable years ended December 31, 2006, 2007, 2010, 2011 and 2015 remain due and payable. Accordingly, updated bills will be issued to the Taxpayer, including accrued interest to date. The Taxpayer should remit payment immediately or collections actions will resume.
The Taxpayer indicates that the payment of the assessments will create a financial hardship. If the assessments create a financial hardship, the Taxpayer may pursue an offer in compromise based on doubtful collectability. To begin that process, the Taxpayer should complete the enclosed Individual Offer in Compromise: Doubtful Collectibility form and Financial Statement for Individuals, and include the required fee or fee waiver request. The completed forms and statement will allow the Department to review and analyze the Taxpayer’s financial situation. Upon completion of that review, a response will be issued to the Taxpayer. The Taxpayers also have the option to request a payment agreement with the Department's Collections Unit. The Collections Unit may be contacted at (804) *****.
The Code of Virginia sections, regulations 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 (804) *****.
Sincerely,
Craig M. Burns
Tax Commissioner
Enclosure
AR/4288.B