January 21, 2020
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek a refund of individual income tax paid by ***** (the “Taxpayers”), for the taxable years ended December 31, 2012, through 2017.
FACTS
The Taxpayers, a husband and wife, were both deceased. Through their personal representative, they filed joint Virginia individual income tax returns for the 2012 through 2014 taxable years in February 2019. Separate returns were also filed at that time on the husband’s behalf for the 2015 through 2017 taxable years because the wife had died in March 2014. Overpayment credits which began in the 2012 taxable year carried over to each of the 2013 through 2016 taxable years until the husband claimed a refund in the 2017 taxable year. The Department denied the overpayment credits claimed on the 2013 and 2014 returns on the basis that the statute of limitations had expired. The denial of those overpayment credits also caused corresponding adjustments to be made to each of the 2015 through 2017 returns.
The Taxpayers filed an appeal, arguing that the Department should agree to extend the statute of limitations on assessment, which they claim also extends the statute of limitations to file returns and claim refunds, because the husband’s medical condition prevented him from timely filing the returns. The Taxpayers also argue that an Internal Revenue Service (IRS) notice they received should be considered a final determination from the IRS that gave them 60 more days to file the returns to claim a refund.
DETERMINATION
Statute of Limitations for Refunds
Virginia Code § 58.1-499 A provides that in the case of any overpayment of any tax, whether by reason of excessive withholding, overestimating and overpaying estimated tax, or error on the part of the taxpayer, the Department shall order a refund of the overpayment. Virginia Code § 58.1-499 D specifies, however, in pertinent part:
No refund under this section . . . shall be made . . . whether on discovery by the Department or on written application of the taxpayer, if such discovery is not made or such written application is not received within three years from the last day prescribed by law for the timely filing of the return . . . .
Although the husband did not request an actual refund until the 2017 taxable year, the laws regarding refunds apply to each taxable year in which the Taxpayers collectively, or the husband individually, attempted to claim an overpayment credit. As stated above, Virginia Code § 58.1-499 requires that an application for refund must be received within three years from the last day prescribed by law for the timely filing of the return. See Public Document (P.D.) 09-88 (5/28/2009). See also Joseph Richard Azar vs. Virginia Dep’t of Taxation, Circuit Court of Arlington County, Case No. 16-1910, the final order for which is reported as P.D. 17-140 (6/30/2017).
Individuals with Medical Conditions
Virginia Code § 58.1-341 A requires that a taxpayer file an individual income tax return by May 1 of the year following the tax year for which the return is filed. Virginia Code § 58.1-341 F provides that an individual who is unable to make a return because of a disability has the responsibility of having such return filed by a fiduciary or duly authorized agent. Thus, Virginia law addresses the requirements of filing returns for taxpayers who have disabilities. While a severe illness or medical condition may be considered a disability for purposes of Virginia Code § 58.1-341 F, the statute does not provide for the suspension of the statute of limitations for an individual who is mentally or physically disabled. See P.D. 10-204 (9/2/2010).
Based on Virginia statutes, the due dates for the Taxpayers’ 2013 and 2014 individual income tax returns were May 1, 2014, and May 1, 2015, respectively. As such, the returns were required to be filed by May 1, 2017, and May 2, 2018, respectively, in order to receive refunds for the 2013 and 2014 taxable years. The original 2013 and 2014 returns were not filed until February 2019, well after the statute of limitations had expired.
Waiver of Statute of Limitations
Under Title 23 of the Virginia Administrative Code (VAC) 10-20-80 A, the Department and a taxpayer may agree to extend the statute of limitations for assessing a tax. The use of the word “may” in the regulation permits, but does not require, the Department to enter into any such agreement. The Department does not use its authority under Title 23 VAC 10-20-80 to enter into agreements with taxpayers to extend the statute of limitations on assessments to circumvent the statute of limitations on issuing refunds. The clear language of the regulation permits the Department and taxpayers to extend the statute of limitations on assessments, not refund claims generally. The regulation, however, does provide that extending the period for assessing tax also extends the period for filing amended returns claiming a refund. Because the Taxpayers’ refund claims were made on original returns, this provision of the regulation is inapplicable regardless.
Final Federal Determination
The Taxpayers argue that the returns were filed within 60 days of receiving an IRS notice that should be considered a final determination for purposes of Virginia Code § 58.1-499. In addition to the three-year statute of limitations described above, Virginia Code § 58.1-499 D provides an alternative limitations period “sixty days 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,” if that is later. The notice the Taxpayers provided merely indicates that their 2013 federal income tax overpayment was applied to tax debts owing for the 2016 and 2017 taxable years. It does not indicate a change or correction in the actual federal income tax liability of the Taxpayers. As such, the sixty-day alternative deadline described by Virginia Code § 58.1-499 D was not applicable.
CONCLUSION
The provisions of Virginia Code § 58.1-499 D are clear and do not provide the Department with any discretion in enforcing the three-year limitations period to apply for a refund. In addition, the Department does not use its ability to enter into waiver agreements with Taxpayers to extend the statute of limitations on assessments to circumvent the statute of limitations on refunds. Further, the Taxpayers did not file the returns within 60 days of receiving an IRS that would be considered a final determination for purposes of Virginia Code § 58.1-499. Accordingly, the Department was correct in denying the overpayment credits claimed on the 2013 and 2014 returns and making the corresponding adjustments to the 2015 through 2017 returns.
The Code of Virginia sections, regulation and public document cited are available on-line at www.tax.virginia.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 Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/2166.M