November 9, 2021
Re: § 1821 Appeal: Converted Assessment
Dear *****:
This will respond to your letter in which you seek correction of the converted assessment issued to ***** (the “Taxpayer”) for the unpaid withholding tax liabilities of ***** (the “Corporation”).
FACTS
The Taxpayer was the president of the Corporation when it ceased operations in August 2017. The Corporation, a semi-weekly withholding tax filer, failed to file any period returns in 2017, but did file a 2017 annual reconciliation withholding tax return in January 2018. Because the Corporation failed to pay the withholding tax due with the reconciliation, an assessment was issued. When the balance due on the assessment remained unpaid, the Department converted the assessment to the Taxpayer in January 2021. The Taxpayer filed an appeal, contending that the statute of limitations had expired to convert the assessment.
DETERMINATION
Virginia Code § 58.1-1813 A states, “Any corporate ... officer who willfully fails to pay, collect, or truthfully account for and pay over any tax administered by the Department of Taxation, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty of the amount of the tax evaded, or not paid, collected or accounted for and paid over, to be assessed and collected in the same manner as such taxes are assessed and collected.”
Every employer whose average monthly liability can reasonably be expected to be $1,000 or more, and the aggregate amount required to be withheld by an employer exceeds $500, is required to file a form with the Department within three banking days following the close of any period for which the employer is required to deposit federal withholding tax and pay the amount so withheld. See Virginia Code § 58.1-472 3.
Federal cutoff dates are generally on Tuesday and Friday of each week. See Treas. Reg. § 31.6302-1. Taxpayers must submit payment by filing a Virginia Form VA-15. Semi-weekly filers must also file a Form VA-16, Employer’s Payments Quarterly Reconciliation and Return of Virginia Income Tax Withheld, for each quarter. The VA-16 is due by the end of the month following the close of the quarter
Further, Virginia Code § 58.1-478 requires every employer to file an Employer’s Annual Reconciliation of Virginia Income Tax Withheld, Form VA-6, no later than January 31 of the calendar year succeeding the calendar year in which wages were withheld from employees. The return must include a copy of the Form W-2 or 1099 furnished to each employee. Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-140-190 B, the VA-6 must be filed no later than January 31, of the calendar year succeeding the calendar year in which wages were withheld from employees, or if the business is terminated during the year, within 30 days after the last month in which wages were paid. Although the Corporation should have filed its last return (Form VA-6) for 2017 within 30 days after it stopped paying wages, it did not file the reconciliation return until January 13, 2018.
The Taxpayer cites Public Document (P.D.) 95-288 (11/8/1995) to support its claim that the assessments were converted beyond the statute of limitations. In that ruling, the Department determined that an assessment of withholding tax was timely converted to an individual in accordance with Virginia Code § 58.1-104 because the assessment was issued within three years of the last day prescribed for the filing of the oldest return. The Taxpayer argues that the Corporation’s last tax return was due and filed in September 2017. The Department converted the Corporation’s withholding tax assessment to the Taxpayer on January 4, 2021. Based on P.D. 95-288, the Taxpayer contends that the converted assessment was made outside the three year limitations period.
Virginia Code § 58.1-104 provides:
Except as provided in Chapters 3 (§ 58.1-300 et seq.) and 6 (§ 58.1-600 et seq.) of this title, any tax imposed by this subtitle shall be assessed within three years from the last day prescribed by law for the timely filing of the return. In the case of a false or fraudulent return with the intent to evade payment of any tax imposed by this subtitle, or a failure to file a required return, the taxes may be assessed, or a proceeding in court for the collection of such taxes may be begun without assessment, at any time within six years from the last day prescribed by law for the timely filing of the return.
Because withholding tax statutes come under Chapter 3 of Title 58.1 of the Code of Virginia, Virginia Code § 58.1-104 is not necessarily controlling for all converted withholding assessments. Virginia Code § 58.1-312, which specifies statutes of limitation for taxes governed under Chapter 3, contains certain provisions governing limitation on assessments of income tax, none of which appear to apply to the facts at hand.
Pursuant to Virginia Code § 58.1-1812, however, specifically applies to the Department’s authority to issue assessments. In accordance with this statute, the Department may assess omitted taxes within three years of the latter of the due date of the return or the actual date that the return was filed.
A well recognized rule of statutory construction is “a specific or special statute supersedes a general statute insofar as there is conflict.” 1985-1986 Report of the Att'y. Gen. at 68, citing Roanoke v Land, 137 Va. 89 (1923); 1973-1974 Report of the Att'y. Gen at 306. While Virginia Code § 58.1-104 is the general statutory provision for the assessment of taxes administered by the Department, Virginia Code § 58.1-1812 applies specifically to the assessment of omitted taxes when a taxpayer “has failed to make a proper return or to pay in full any proper tax.”
In this case, the only return the Taxpayer filed that covered the assessed tax at issue was the Corporation’s Form VA-6 withholding reconciliation return. It was not filed until January 13, 2021. While the Taxpayer asserts the Corporation ceased operations in August 2017, Virginia Employment Commission (VEC) records indicate that the Corporation last paid wages in October 2017. The Corporation did not file its withholding reconciliation return within a month of it last paying wages as prescribed under Title 23 VAC 10-140-190. Rather, it filed its 2017 VA-6 on January 13, 2018. As such, pursuant to Virginia Code § 58.1-1812 A, the Department had until January 13, 2021 to convert the assessment. The Corporation’s assessment was converted to the Taxpayer on January 4, 2021, within the limitations period.
Although the Department cited Virginia Code § 58.1-104 in P.D. 95-288, there is no indication that the taxpayer in that case filed any late returns and the assessment was properly issued within the period defined by either Virginia Code §§ 58.1-104 or 58.1-1812. Because there was no need in P.D. 95-288 to look beyond the general three year limitations period starting from the last day prescribed by law for the timely filing the return, P.D. 95-288 is of limited relevance to the case at hand.
Accordingly, the Department finds that the assessment was timely converted to the Taxpayer. The Taxpayer will receive an updated bill that will include accrued interest to date. The Taxpayer should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collection actions.
The Code of Virginia sections, regulation and public document 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/3704.B