Amended Return - Statute of Limitations
August 31, 2023
Re: § 58.1-1821 Application: Corporate Income Tax
Dear *****:
This will respond to your letter in which you seek correction of the corporate income tax assessments issued to your client, ***** and ***** (the “Taxpayers”), for the taxable years ended December 31, 2012, and 2013, respectively. I apologize for the delay in responding to your correspondence.
FACTS
The Taxpayers filed consolidated Virginia corporate income tax returns for the taxable years at issue. Under audit, the Department removed certain subsidiaries of the Taxpayers from the consolidated returns on the basis that they lacked income tax nexus with Virginia. The removal of these entities resulted in adjustments to the groups’ apportionment factors and deductions for net operating losses (NOLs).
The Taxpayers appealed, contending that 1) certain affiliates erroneously sourced sales to Virginia; 2) another affiliate should have been removed from the consolidated returns because it had no Virginia sales and thus no nexus; and 3) the Taxpayers made numerous errors in reporting NOLs for federal income tax purposes.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-20-160 sets forth potential remedies available to a taxpayer who believes that an assessment is erroneous. In this case, the Taxpayers chose to file an administrative appeal under Virginia Code § 58.1-1821. See Title 23 VAC 10-20-160 A 2. Such remedy “may be used to protest any or all issues connected with an assessment.” See id. Administrative appeals must, among other things, include a statement “setting forth each alleged error in the assessment, the grounds upon which the taxpayer relies and all facts relevant to the taxpayer’s contention.” See Title 23 VAC 10-20-165 D 1 f. The Taxpayers, however, did not allege any particular errors with the assessment. In fact, the Taxpayers agreed that the Department properly removed the subsidiaries from the consolidated returns. The issues raised by the Taxpayers, namely the Taxpayers’ own alleged errors in reporting Virginia sales and accounting for NOLs at the federal level, were not the subject of the audit.
Title 23 VAC 10-20-160 A 3 explains that the amended return process “may be used to amend a return based upon new or newly discovered facts such as errors discovered in the original return or a change in federal taxable income.” The issues described by the Taxpayers in their appeal clearly arose from the Taxpayers’ own alleged reporting errors on their original returns. Because no alleged errors were made against the audit assessment, the Taxpayers’ filing does not qualify as an appeal under Virginia Code § 58.1-1821.
Generally, Virginia Code § 58.1-1823 allows a taxpayer to file an amended return within three years from the last day prescribed by law for the timely filing of the return. In this case, the general deadline has long since passed. However, there a number of exceptions to the general rule when specific circumstances are present. At this time, none of the circumstances exist that would allow the Taxpayers to file amended returns under any of the exceptions set forth in Virginia Code § 58.1-1823. While the Taxpayers could pay the assessments and file amended returns within two years as permitted by Virginia Code § 58.1-1823(iv), such returns must be limited to issues related solely to the assessments. As explained above, however, the issues raised by the Taxpayers in this appeal are separate and distinct from those raised in the audit.
Likewise, the three year period for filing a protective claim for refund under Virginia Code § 58.1-1824 has long since expired, even if the Taxpayers had paid the assessments, which they have not. In any event, the Taxpayers would have to have alleged particular errors in the assessments for which they were filing a protective claim, and as indicated above, the Taxpayers are not actually disputing the basis of the assessments. See Title 23 VAC 10-20-190 A 2.
Therefore, the assessments are upheld and remain due and payable. The Taxpayers will receive updated bills, which will include accrued interest to date. The Taxpayers should remit payment within 30 days to avoid the accrual of additional interest and possible collections actions.
The Code of Virginia sections and regulations 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 (804) *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1209m