Tax Type
Individual Income Tax
Description
Tax on income from illegal drug sales
Topic
Collection of Delinquent Tax
Date Issued
04-27-1992
April 27, 1992
Re: § 58.1-1821 Application; Individual Income Tax
Dear ****
This will reply to your letter of September 23, 1991, in which you seek a refund of amounts paid pursuant to a jeopardy assessment for * * * * * (the "Taxpayer").
FACTS
The taxpayer was arrested for violation of Virginia drug laws in August of 1983. Based on reports from the Virginia State Police, the Department of Taxation determined the taxpayer's income tax liability for unreported income from the sale of illegal drugs and issued jeopardy assessments for taxable years 1978 through 1983, on August 5, 1983. The department collected the entire amount assessed through various seizures of assets.
You assert that the assessments were based on inaccurate information furnished by the police, and that assessments should have been issued only for 1982 and 1983, as was done by the IRS.
DETERMINATION
The remedies available to a taxpayer seeking a refund of state income taxes are set forth in Va. Code §§ 58.1-1821 (Application to Tax Commissioner for correction), 58.1-1823 (Reassessment and refund upon filing of amended return), 58.1-1824 (Protective claim for refund) and 58.1-1825 (Application to circuit court for correction of erroneous or improper assessments). Because the remedies are statutory in nature, one seeking relief from an allegedly erroneous tax assessment must proceed strictly according to the statute. See Commonwealth v. Cross, 196 Va. 375 (1954).
A review of these statutes reveals that the latest any administrative or judicial protest of the assessments could be made was three years after the date of assessment, or August 5, 1986. Because no relief was sought within the three year period, all administrative and judicial remedies for refund are barred by the applicable statute of limitations.
You argue that the assessments for the taxable years 1978 through 1981 were based on inaccurate information and, therefore, are erroneous. Consequently, the taxpayer's remedies for relief are still available.
Even if the department were to accept your argument that the assessments were erroneous in that they were based on inaccurate information, opinions of the Attorney General have stated that if tax is collected based on an erroneous assessment, a taxpayer's claim for refund must be brought within the statutory period. 1986-1987 Rep. of Att'y Gen. at 319 (copy enclosed). Because the taxpayer did not pursue his administrative and judicial remedies within the applicable limitations periods (as stated above), your claim for refund must be denied.
Your letter indicates that the taxpayer is still negotiating with the IRS to determine the correct amount of unreported income for taxable years 1982 and 1983. Because federal adjusted gross income is the starting point for computing an individual's Virginia tax, when there is a change made by the IRS to federal adjusted gross income, the Virginia return will be adjusted accordingly.
Once a final determination of the taxpayer's federal tax liability for taxable years 1982 and 1983 is made by the IRS, the taxpayer will have 60 days (90 days after July 1, 1992 - see Chapter 678, 1992 Acts of Assembly) to file an amended Virginia return claiming a refund for each taxable year. Since the refund claim would be due to a change in federal adjusted gross income, the taxpayer must furnish with each amended Virginia return an appropriate notice that the change has been accepted by the IRS.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner