Administration: Offer in Compromise - Doubtful Collectability
September 1, 2020
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of the retail sales and use tax assessment converted to ***** (the “Taxpayer”), as a result of liabilities incurred by ***** (the “Company”), for the period February 2007 through June 2009.
Background Information
As a result of the Department’s audit, it was discovered that the Company had failed to file sales and use tax returns for a number of months in the audit period. When the Company did not respond to the Department’s inquiries, the Department’s auditor estimated the amount of sales tax due and issued an assessment. Based on information subsequently provided by the Taxpayer, the Department revised the assessment accordingly. The assessment was later converted to the Taxpayer in June 2010 and collection action was initiated. The Taxpayer appeals, contending that the Department violated the Virginia Taxpayer Bill of Rights in issuing the assessment.
Statute of Limitations
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 Department and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer’s contention.”
The converted assessment in question was issued in June 2010, and the 90-day deadline to file an appeal has expired. Accordingly, the Taxpayer’s appeal was not timely filed, and is barred from review in accordance with the cited statute.
Taxpayer Bill of Rights
The Taxpayer contends that the assessment should be abated on the basis that the Department violated the Taxpayer Bill of Rights in issuing the assessment. Virginia Code § 58.1-1845 sets out the Taxpayer Bill of Rights. The statutory provisions are expanded on in a publication of the same name issued by the Department and posted on the Department’s website. The Taxpayer complains that several audit procedures described in the publication were not followed, namely that the auditor failed to: (1) discuss the operation of the business; (2) discuss the audit process; (3) explain how tax laws and policies applied to the business transactions; (4) provide a copy of the audit report; and (5) explain the Taxpayer’s appeal rights.
A number of years have passed since the audit was completed. Nevertheless, a member of my Appeals and Rulings staff researched the audit history and discovered that the auditor made attempts in writing and by telephone to reach the Taxpayer. When no responses were received, an assessment was issued based on the limited information available. It would not be possible for the Department’s auditor to discuss the operation of the business or the audit process and explain how tax laws and policies applied to the business if the Taxpayer does not communicate with the Department’s auditor during an audit. It appears that the Taxpayer subsequently worked with the auditor to provide information, which resulted in the assessment being partially reduced. The Department’s records indicate that a letter was sent to the Taxpayer upon conclusion of the audit, including a copy of the audit report and an explanation of the Taxpayer’s appeal rights.
While the Department aspires to follow all of the audit procedures described in the Taxpayer Bill of Rights publication, appeals must be decided on the merits of the case. Even if this appeal had been timely filed, the Taxpayer has provided no legal or factual grounds specifically pertaining to the Company’s sales and use tax liability upon which to base a correction of the assessment.
Because the Taxpayer did not file an appeal until after the deadline for filing an appeal under Virginia Code § 58.1-1821 had passed, the appeal must be denied. Even if the appeal had been timely filed, the Taxpayer’s contentions that the Department failed to follow certain field audit procedures as described in its Taxpayer Bill of Rights publication do not create a basis upon which the assessment can be abated in this case. Based on a review of the Department’s records, the specific procedures the Taxpayer mentioned either were performed by the auditor or were not performed because of the Taxpayer’s failure to respond to audit inquiries.
OIC – Doubtful Collectability
The Taxpayer indicates that paying the full amount of the assessment may cause a financial burden. As such, the Taxpayer may wish to request an offer in compromise based on doubtful collectability. The Taxpayer must present evidence of doubtful collectability to support a claim of financial hardship.
If the Taxpayer wishes to pursue a settlement based on doubtful collectability, please complete and return the enclosed OIC-Fee, OIC I-3 and FIN I-1 forms to: Tax Commissioner, Virginia Department of Taxation, Post Office Box 2475, Richmond, Virginia 23218-2475. These forms will allow the Department to review and analyze the Taxpayer’s financial situation. Upon completion of the Department’s review, a response will be issued based upon the information provided. If the Department does not receive the completed forms within 90 days of the date of this letter, it will be presumed that the Taxpayer will not submit an offer in compromise based upon doubtful collectability and collection action will resume.
The Code of Virginia sections cited are available on-line at www.virginia.tax.gov in the Laws, Rules and 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/3407.M