December 13, 2017
Re: § 58.1-1821 Application: Estate Tax
Dear *****:
This will reply to your letter in which you seek a refund of estate tax paid by your client, the ***** (the “Taxpayer”).
FACTS
The Taxpayer filed its original Virginia estate tax return in September 2008. It filed amended Virginia and federal estate tax returns in March 2014, reducing the value of the gross estate and claiming a refund of estate tax paid. The Department did not accept the return because the Taxpayer did not provide proof that the Internal Revenue Service (IRS) had accepted the Taxpayer's changes. The amended federal return was reviewed by the IRS, and the IRS and the Taxpayer later agreed to a gross estate value that was less than originally reported but not as low as the figure reported by the Taxpayer on the amended returns. Acceptance of the agreed value resulted in an overassessment of federal estate tax, and a refund was issued. The Taxpayer and the IRS agreed to the overassessment amount by signing a federal Form 890-AD on December 1, 2015, and December 7, 2015, respectively. The Taxpayer was informed that the IRS had closed the case by letter dated January 11, 2016. The Taxpayer states that the refund was issued in April 2017.
The Taxpayer filed another amended Virginia estate tax return in March 2017, to reflect the changes to which it and the IRS agreed. The Department denied the refund on the basis that the amended return was filed after the statute of limitations had expired. The Taxpayer appealed, contending the second amended return was timely filed because it was filed within one year after the changes to its federal estate tax return became final. Alternatively, the Taxpayer argues that the second amended return was timely filed because it was filed within three years of the first amended return.
DETERMINATION
Statute of Limitations
Generally, Virginia Code § 58.1-1823 allows a taxpayer to file an amended return within three years from the last day prescribed by law for the timely filing of the return. Virginia Code § 58.1-1823, however, also includes a number of exceptions to the general rule when specific circumstances are present. Under Virginia Code § 58.1-1823 A (ii), a taxpayer may timely file an amended return within one year from the final determination of any change or correction in the liability of the taxpayer for any federal tax upon which the state tax is based, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such federal change or correction.
Under Title 23 of the Virginia Administrative Code (VAC) 10-20-180 B, a final determination of a change in liability for the federal tax includes, with certain exceptions, the refund by the IRS of any federal income or estate tax. A final determination may also include a copy of an RAR, Form 870, 90-day letter, closing agreement, or court decision. Thus, under Title 23 VAC 10-20-180 B, a taxpayer may have more than one final determination for a given taxable year.
Payment of an estate tax refund may be considered a final determination for purposes of Virginia Code § 58.1-1823 only if none of the other final determination dates apply. See Title 23 VAC 10-20-180 B 1. The Taxpayer asserts that the federal estate tax refund was received in April 2017. Before this date could be considered the final determination date, it is necessary to determine whether another final determination date had occurred already.
A final determination also occurs on the date of “[t]he 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 by the IRS.” See Title 23 VAC 10-20-180 B 2. Form 870 is entitled Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. The Taxpayer and the IRS signed a similar form, Form 890-AD, entitled “Estate Tax Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and of Acceptance of Overassessment.” The Taxpayer signed this form on December 1, 2015, and it was accepted by the IRS on December 7, 2015. This document was enclosed in a letter dated January 11, 2016, from the IRS to the Taxpayer showing the computation of the total federal estate tax liability. The Taxpayer states that another letter was sent dated February 8, 2016, showing the proposed calculation and giving the Taxpayer 60 days to question it.
The applicable regulation does not provide for 60 additional days after a taxpayer and the IRS have agreed to an overassessment amount on Form 870 or similar form. The Department's policy has been that the statute of limitations begins to run under Title 23 VAC 10-20-180 B 2 from the date the IRS accepted Form 870 or similar forms. See Public Document (P.D.) 95-105 (5/8/1995) and P.D. 93-159 (7/23/1993). The Taxpayer, therefore, had until December 7, 2016, within which to file the amended Virginia estate tax return claiming refund. Because the return was not filed until March 2017, it was not timely filed. In addition, it does not appear that any other final determination date described in Title 23 VAC 10-20-180 B applied.
The Taxpayer also argues that it had three years from the filing of the first amended return on April 3, 2014, to file the second amended return. Virginia Code § 58.1-1823 generally grants three years from the last day for timely filing an original return to file an amended return claiming refund. The last day for timely filing the original Virginia estate tax return was March 13, 2009, the extended due date for filing the federal estate tax return. See Virginia Code § 58.1-905. Neither amended return, therefore, was filed within the three-year general statute of limitations. The filing of one amended return does not provide three additional years to file another amended return.
Information Requests
The Taxpayer contends that the Department's failure to respond to information requests concerning its account contributed to its delay in filing the amended return. The Taxpayer states that the current executor (the “Executor”) repeatedly requested copies of all correspondence between the Department and a former executor. The Department's records indicate that in February 2017, the Executor requested copies of all correspondence between the Taxpayer and the Department. At the same time, she stated that she would fax the IRS approval and an out-of-state return for review. This same information had been requested by the Department several times prior to this conversation, by letters dated June 12, 2014, February 29, 2016, and August 29, 2016.
The Executor also requested information concerning payment history on the account and the computation of interest and penalties in October 2015. It appears she wanted to obtain this information to prepare a schedule of adjustments with the IRS prior to closing the federal audit in December 2015. The Department responded in August 2016 with the requested payment history, including a separate page showing the computation of interest (no penalties had been assessed).
Although there was a delay in providing the Executor with the requested payment history, it does not appear to have affected the Taxpayer's ability to close the federal audit. In addition, the information was still provided by the Department prior to the expiration of the statute of limitations. It also does not appear that the Executor made the broad request for information concerning correspondence with the former executor until February 2017, after the statute of limitations had already expired. Even so, it appears that after the case settled with the IRS, the Taxpayer had all of the information that was needed to file a proper amended return. Regardless, the statute of limitations is clear and the law gives the Department no discretion in its enforcement. Accordingly, I am unable to accept the Taxpayer's amended return as timely filed, and the refund must be denied.
The Code of Virginia sections, regulation 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/1357.M