Tax Type
Estate Tax
General Provisions
Description
Interest calculation when both refund and tax liability exist
Topic
Penalties and Interest
Date Issued
11-19-1986
November 19, 1986
Re: §58.1-1821 Application; Estate Tax
§58.1-1812 Interest on outstanding tax
Dear ******************
This is in response to your letter of April 1, 1986, in which you object to the manner in which interest on refunds and outstanding tax is computed.
Because the estate tax return could not be prepared by the due date an extension was requested and a tentative tax was paid. When the estate tax return was filed it showed that the estate was due a refund. The refund check was mailed 115 days after the due date of the return but interest on the first 60 days and the last 30 days was not paid pursuant to §58.1-1833.
The federal return was subsequently audited by the Internal Revenue Service and the federal tax liability was increased. An amended Virginia estate tax return was timely filed in which the change in federal tax liability was reported and the additional Virginia tax was paid.
In computing the interest on the additional tax you combined the refund on the original return and the additional tax on the amended return. You paid interest on the difference between the two amounts for the period between the due date of the return and the date the refund check was issued and on the full amount of additional tax for the period subsequent to the refund check. This had the effect of crediting the estate with interest on the refund for the entire period the department held the refund, including the first 60 days and the last 30 days.
Virginia law does not contain a provision similar to I.R.C. §6601(f) which provided that no interest will be charged on any portion of a tax satisfied by credit of an overpayment. Even if such a provision existed in Virginia law, it would not apply in this case because the overpayment was paid to the estate, not credited against the additional tax.
Under Virginia procedure the two returns are entirely different transactions. Interest on each return is computed separately. Interest on additional tax is charged pursuant to §58.1-1812 from the due date to the date of payment. Interest on refunds is paid pursuant to §58.1-1833 from the due date to the date of payment, but up to 90 days interest may be omitted.
If the overpayment shown on the original return had not been refunded for some reason, then interest on the additional tax would have been computed on the difference between the correct tax and the amount paid with the extension request. However, because the overpayment shown on the original return was refunded, neither the overpayment nor interest on the overpayment mar be credited against the additional tax due.
Accordingly the interest duo of the additional tax was properly computed and assessed by the department and is now due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner