Tax Type
Corporation Income Tax
Description
Time limitations for assessment and collection; Timeliness of request for refund
Topic
Collection of Tax
Date Issued
10-12-1994
October 12, 1994
Re: §58.1-1821 Application; Corporate Income Taxes
Dear**********
This will reply to your letters of April 29, 1994, July 28,1994, and August 26, 1994, and our meeting of September 20, 1994, in which you have applied for correction of an assessment of corporate income taxes on behalf of ***** (the "Taxpayer" ) .
FACTS
The Taxpayer, a corporation, was audited by the Internal Revenue service (IRS) for the taxable years ended September 30, 1987, and 1988. The sole shareholder of the Taxpayer was also audited by the IRS for this period.
On April 20,1992, the Taxpayer filed Form 500X with the department to report the changes made by the audit for the year ended September 30, 1987. Form 500X as filed resulted in a claim for refund, and was denied by the department because the Taxpayer did not provide evidence that the amended return was filed within 60 days of a final determination of a change to the Taxpayer's federal taxable income. The Taxpayer protests this determination, and contends that because the IRS made related adjustments between the Taxpayer and its sole shareholder, it is not equitable to collect a tax increase from the sole shareholder while denying a refund owed to the Taxpayer. Also, the Taxpayer believes that a "final determination" has not been received from the IRS with respect to adjustments made, and therefore the statute of limitations has not closed with respect to the Virginia refund claim.
DETERMINATION
Pursuant to Va. Code §58.1 -1823, an amended return claiming a refund must be filed within three years of the due date of the return or, if later, within 60 days from the final determination of a change in the taxpayer's federal taxable income. (Note - Chapter 678 of the 1992 Acts of Assembly changed the period from 60 to 90 days for amended returns filed on and after July 1, 1992.) In this case, the amended return claiming a refund was filed more than three years after the due date of the return. Therefore, it is timely filed only if filed within 60 days from the date of final determination .
The information provided by the Taxpayer includes a copy of Form 870-AD, which was signed by the Taxpayer's representative on August 19, 1991. The form was stamped "Received" by the IRS Appeals Office in Bailey's Crossroads, Virginia, but the Taxpayer has no record of ever receiving a signed copy of Form 870-AD indicating formal approval.
The department has contacted the IRS in an effort to determine if or when Form 870-AD was signed and accepted. The department has learned the IRS does not retain "paper documentation" with respect to appeals cases for more than two years, and is unable to provide a copy of Form 870-AD. However, they have provided a transcript of the Taxpayer's account. The transcript shows that on September 30, 1991, a refund with interest was granted to the Taxpayer. The refund allowed was exactly the amount itemized on Form 870-AD. In the information provided to the department, the Taxpayer confirmed that the IRS refund was made in September of 1 99 1 .
VR 630-3-1823 B, provides in pertinent part:
-
- [For] the purposes of this regulation, any one of the following shall be deemed a final determination of a change in liability for the federal tax:
1. Payment or refund of any federal income or estate tax, not the subject of any other final determination described in paragraph (2), (3), (4), or (5) of subsection (B) (emphasis added)....
2. The receipt of an assessment or other notice that the amount of deficiency or overassessment stated on federal form 870 or similar form has been agreed to buy the I . R . S ....
- [For] the purposes of this regulation, any one of the following shall be deemed a final determination of a change in liability for the federal tax:
Because the IRS issued a refund on September 30, 1991, a final determination as defined by VR 630-3- 1823 occurred no later than the date of such refund . Accordingly, even if the Taxpayer did not receive a signed copy of Form 870-AD, a final determination occurred no later than September 30,1991. The amended return was filed on April 20, 1992, more than 200 days after a final determination had occurred .
The Taxpayer suggests that some sort of mitigation or the common law principal of equitable recoupment should grant relief in this situation. While Virginia has adopted conformity to the Internal Revenue Code, such conformity is only with respect to terms used within the Code of Virginia. Virginia statutes do not contain the equivalent of the federal mitigation provisions. In any event, the concept of the IRC mitigation provisions is not applicable to this situation. On the date the federal changes were made, Virginia statutes did not bar the Taxpayer from filing an amended return and claiming a refund. It was only after the expiration of an additional 60 days that the Taxpayer was barred from claiming a refund. The Taxpayer was entitled to relief, but failed to act within the statute of limitations.
As set forth by the Virginia Supreme Court in Commonwealth v. Holland, 211
Va. 530:
-
- It is well settled that the common law continues in force in Virginia except as altered by statute. (Emphasis added.)
The IRS audit of the sole shareholder of the Taxpayer involved a separate taxpayer (an individual) and different tax periods. Although some of the audit issues may have in part been related to both parties, as indicated above the Taxpayer was never placed in a position whereby IRS adjustments to one party resulted in assessments, with offsetting refunds of another party barred by statute of limitations. The Taxpayer's refunds would have been allowed by the department if the claim had been timely filed.
Therefore, the department must rely on the clear language of Va. Code §58.1 -1823, and VR 630-3-311 (B). Based on the law and regulation, the department does not have the authority to issue a refund requested more than sixty days after the federal refund was issued.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/6831M
Rulings of the Tax Commissioner