May 27, 2020
Re: § 58.1-1821 Application: Corporate Income Tax
Dear *****:
This will reply to your letter in which you seek a refund of corporate income tax paid by ***** (the “Taxpayer”) for the taxable years ended December 31, 2006 and 2007.
FACTS
The Taxpayer timely filed its 2008 Virginia corporate income tax return reporting a net operating loss (NOL). In October 2012, the Taxpayer filed an application for refund, carrying back the NOL and offsetting the Virginia income tax paid for the 2006 and 2007 taxable years. When reviewing the application, the Department determined that the Taxpayer had not filed a 2007 Virginia corporate income tax return.
The Department requested that the Taxpayer file a 2007 corporate income tax return and provide proof that the Internal Revenue Service (IRS) accepted the reported carrybacks. The Taxpayer filed its 2007 Virginia corporate income tax return in February 2019. It then submitted a federal Form 870 and excerpts of a federal Form 4549B to the Department in April 2019, confirming that the carrybacks were accepted by the IRS. The Department denied issuing the refund because the Form 870 was approved by the IRS in November 2015, but not received by the Department until after the limitations period for refunds expired. The Taxpayer appeals, contending the application for a refund was timely filed and no change in federal taxable income (FTI) occurred, making the filing date of the Form 870 irrelevant.
DETERMINATION
Virginia Code § 58.1-311 requires taxpayers to report a change or correction in federal taxable income within one year of a final determination of such change by filing an amended return with the Department. 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. For purposes of Virginia Code §§ 58.1-311 and 58.1-1823, a change in federal tax liability includes 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 by the IRS. See Title 23 of the Virginia Administrative Code (VAC) 10-20-180 B 2.
The Taxpayer signed a federal Form 870 with the IRS in November 2015 showing the IRS agreed to overassessments of federal income tax for taxable years encompassing the ones at issue in this appeal. It was submitted to the Department in April 2019, more than one year after the agreement with the IRS. The refund was denied because the Form 870 was received more than one year after it was entered into by the Taxpayer and the IRS.
The Taxpayer contends that the application for the carryback was timely filed in 2012. It asserts that there was no change in FTI because the IRS accepted the original federal carryback claims and, therefore, the Form 870 did not constitute a change that triggered the amended return filing deadline.
While the Department made requests for additional information and a return in 2013, no definitive decision was made to deny the refund until 2019. The Department’s receipt of the Form 870 resulted from open requests for additional information. There is no statute or regulation requiring the Department to request additional information; rather, the Department requests information when certain thresholds are met or there is reason to question the validity of a claim. Because a final determination was not made by the Department prior to receiving the Form 870, the statute of limitations for the refund request remained open. Once the denial was issued by the Department, a determination was created that the Taxpayer properly appealed under Virginia Code § 58.1-1821.
Accordingly, the Taxpayer timely filed its application to carryback the 2008 NOL to the 2006 and 2007 taxable years. As such, the application will be reviewed by the Department’s compliance staff and the Taxpayer’s liability for the 2006 and 2007 taxable year adjusted. A refund will be issued as warranted.
The Code of Virginia sections and regulation 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/2163.B