February 16, 2021
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which the seek a refund of the individual income tax paid by ***** (the “Taxpayers”) for the taxable year ended December 31, 2014.
FACTS
The Taxpayers filed a 2014 Virginia individual income tax return in December 2019, reporting an overpayment of income tax and requesting that the overpayment be credited against their income tax liability for the 2015 taxable year. The Department denied the request because the return was filed beyond the refund period allowed by the statute of limitations. Adequate tax was paid for the 2015 taxable year without the overpayment from the 2014 taxable year, but an underpayment of tax was the result for the 2016 taxable year. As such, an assessment was issued in March 2019 for the 2016 taxable year. The Taxpayers request a refund of the overpayment of tax paid for the 2014 taxable year, contending that their 2014 return was filed by the extended October 2015 due date. The Taxpayers also argue that the pandemic and the death of their tax representative hindered their ability to resolve the late filing of the return.
DETERMINATION
Statute of Limitations
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 that:
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 . . . [Emphasis added.]
Virginia Code § 58.1-341 A requires that taxpayers file individual income tax returns by May 1 of the year following the tax year for which the return is filed. Virginia Code § 58.1-344 provides a six-month filing extension of the due date for filing the income tax return.
Taxpayers are allowed to elect to take a six month extension to file their returns. In order to elect an extension, a taxpayer must (i) file the return within the extended period, and (ii) on or before the original due date for the filing of the return, pay the full amount properly estimated as the balance of the tax due for the taxable year. See Virginia Code § 58.1-344. If the taxpayer intends to take the extension but then does not file a return or pay the full amount of the tax due by the extended due date, the taxpayer is treated as if no extension had been granted. See Public Document (P.D.) 10-238 (9/30/2010).
When an original return has been filed after the extended due date, the taxpayer has from three years after the original due date to file an amended return. This is because Virginia Code § 58.1-344 A permits an individual to elect “an extension of time within which to file the income tax return . . . .” If a taxpayer has not filed an original return by the extended due date, a valid election to extend the due date has not been made. In such cases, the extension is negated and the last day allowed for the timely filing of the return reverts to the original due date of such return.
Accordingly, because the Department had not received the Taxpayers’ 2014 return before the extended due date, the Taxpayers had three years from the original due date, May 1, 2015, in which to file a timely request for refund. The statute of limitations for filing a return claiming a refund for the 2014 taxable year expired the day after May 1, 2018. The Taxpayer’s 2014 income tax return that was received by the Department was filed on December 3, 2019, well beyond the extended due date.
Notification
The Taxpayers contend that they timely filed their 2014 return by mail prior to the extended due date and that the Department was responsible for notifying them that the return had not been received. The Department has no record of receiving a 2014 return from the taxpayers that was mailed prior to the extended due date.
Virginia receives approximately 3.5 million individual income tax returns per year and only a small portion of the individual taxpayers can be audited or reviewed. Like the federal tax regimen, Virginia’s taxing system is based largely on the concept of self-assessment. A taxpayer computes his own income tax, completes his own return, files the return, and pays the tax indicated. Virginia has implemented a self-assessment system based on the federal system because it is less intrusive upon taxpayers, simpler, and less costly to administer. Consequently, taxpayers are responsible for making sure their returns are filed on a timely basis.
Further, the Taxpayers were notified by letter in February 2017 that the overpayment from the 2014 taxable year had been adjusted. At that time, they were well within the three year period to claim the refund.
Professional Tax Preparation and the Pandemic
The Taxpayers claim that their accountant’s death and the Covid-19 pandemic hindered the resolution of their claim. Both the death of their accountant and the pandemic occurred in 2020, well after the limitations period for a claim for refund.
CONCLUSION
Therefore, in accordance with Virginia law and the Department’s longstanding policy, the request for a refund of the overpayment of Virginia income tax for the taxable year ended December 31, 2014 cannot be granted. In addition, although the Taxpayers made a payment towards their 2016 tax assessment, the Department’s records indicate that there is a balance of interest due. A bill will be issued for this balance. The Taxpayers should remit payment for the outstanding balance within 30 days from the date of the revised bill.
The Code of Virginia sections 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/3568.B