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