Tax Type
Corporation Income Tax
Description
Refund; Pending final federal determination
Topic
Payment and Refund
Date Issued
04-08-1994
April 8, 1994
RE: Va. Code §58.1-1821 Application: Corporate Income Tax
Dear**************
This will reply to your letter dated March 29, 1993, in which you protest the denial of refund claims of corporate income tax for the 1989 and 1990 taxable years of ******(the"Taxpayer").
FACTS
The Taxpayer settled an audit with the Internal Revenue Service ("IRS") for the 1987 and 1988 taxable years. Several adjustments were timing issues that resulted in a deficiency for 1987 and 1988, but would create refunds in 1989 and 1990. The taxpayer and the IRS entered into an agreement concerning the deficiencies for 1988 and 1989 (including penalty and interest) and the estimated 1989 and 1990 refunds, and required the taxpayer to pay the net amount. The agreement then stated that the IRS "will stay collection procedures on the [refund] balance due pending the examination of the claims which will be finalized when the examination of the Federal Tax Returns for 1989 and 1990 are completed."
The Taxpayer amended its 1989 and 1990 Virginia returns to reflect the federal adjustments and claim refunds. Although the Taxpayer timely filed its amended 1989 and 1990 Virginia returns, the Department declined to issue refunds because the federal determination was not final.
DETERMINATION
VR 630-3-1823.B.1 (a copy of which is attached) provides that a refund of any federal income tax is a final determination of a taxpayer's federal tax liability for the purpose of determining when amended returns must be filed and additional tax paid or refunds issued. There can be more than one "final" determination for a taxable year. Therefore, the fact that the IRS may audit and assess additional tax, or that the taxpayer may sue for a refund, does not affect the finality of a particular determination. The intent of these provisions is clearly to require payment to Virginia when the IRS is paid, and refunds of Virginia tax when federal tax has been refunded.
However, in this case the IRS did not actually allow a refund for 1989 and 1990, nor did it offset the 1987 and 1988 deficiencies with 1989 and 1990 refunds. All the IRS did was stay collection on the portion of the 1987 and 1988 deficiency representing the anticipated refund for 1989 and 1990. The actual refund and offset will not take place until the examination of 1989 and 1990 is completed. In the event that other issues reduce or eliminate the refunds, the Taxpayer will owe interest on the portion of the assessments for 1987 and 1988 for which collection was stayed. The IRS conceded that in such event the potential refund claim would be reasonable cause for failure to pay the full assessment and the penalty under I.R.C. §6651 would be waived. Under these circumstances I conclude that there has not been a "final determination" by the IRS on the 1989 and 1990 refund within the meaning of VR 630-1-1823. Therefore, the refund claims were properly denied at this time.
Upon conclusion of the IRS examination and a final determination by the IRS (or the courts, if applicable), the taxpayer will have at least 90 days to file the appropriate amended Virginia returns under Va. Code §58.1-1823.
Although the taxpayer did not contest the assessment of Virginia tax for 1988, collection of that bill has been suspended pending this determination as to whether there was a refund available to offset it. Since there is no refund available at this time, that amount, with accrued interest, is now due and payable. Please pay the amount of*************within 30 days to avoid the accrual of additional interest and further collection actions. Payment should be mailed to ********Virginia Department of Taxation, P. O. Box 1880, Richmond, Virginia 23282-1880.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/6867L
Rulings of the Tax Commissioner