Tax Type
Individual Income Tax
Description
Limitations for assessment and collection; federal income tax liability
Topic
Collection of Tax
Date Issued
05-11-1995
May 11, 1995
Re: §58.1-1821 Application: Individual Income Tax
Dear*************
This will reply to your letter of March 21, 1995, in which you (the "Taxpayers") protest the assessment of individual income tax for taxable year 1988.
FACTS
The Taxpayers filed a joint return in Virginia for 1988. The department received information from the Internal Revenue Service ("I.R.S.") regarding the Taxpayers' 1988 federal filing. As a result of this information, the department reduced the Taxpayers' itemized deductions on their Virginia return and issued an assessment dated July 10, 1991.
The Taxpayers responded in a letter dated August 28, 1991, indicating that several aspects of their 1988 federal return were in dispute and that a petition had been filed with the U.S. Tax Court (the "Tax Court"). The department agreed to hold the July 10, 1991 assessment in abeyance until the Tax Court rendered its decision.
The department recently received additional information from the I.R.S. reflecting the Tax Court's determination regarding the Taxpayers' 1988 federal income tax liability. Based on this information, the department issued a second assessment dated March 13, 1995, reflecting the Virginia income tax liability associated with the Tax Court's decision.
The Taxpayers contend that the statute of limitations prevents the department from assessing tax related to taxable year 1988. In addition, the Taxpayers state the assessments do not take into account corrections in subsequent years that would result in refunds to the Taxpayers.
DETERMINATION
Code of Virginia §58.1-104 provides, in pertinent part:
... any tax imposed by this subtitle shall be assessed within three years from the last day prescribed by law for the timely filing of the return.
Virginia law provides an exception to the three year statute of limitations for assessing tax when an individual fails to report a change or correction in federal taxable income. Code of Virginia § 58.1-311 requires any individual to report a change or correction in federal taxable income within ninety days of the final determination of such change or correction by filing an amended return with the department. If the taxpayer fails to file an amended return, Code of Virginia §58.1-312 (A)(3) will apply, which provides:
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- The tax ... may be assessed at any time if:
The taxpayer fails to comply with §58.1-311 in not reporting a change or correction increasing his federal taxable income as reported on his federal income tax return, or in not reporting a change or correction which is treated in the same manner as if it were a deficiency for federal income tax purposes, or in not filing an amended return. (Emphasis added).
- The tax ... may be assessed at any time if:
The department recently contacted the Tax Court for the purposes of ascertaining the progress of your case. Your case was heard before the Small Tax Division of the Tax Court and a final decision was entered on May 20, 1993. Because decisions of the Small Tax Division of the Tax Court are final and are not subject to appeal, the final determination of your federal income tax liability for 1988 occurred on May 20, 1993.
Because an amended 1988 Virginia return was not filed within ninety days of the date your Tax Court decision was entered, the law authorizes the department to assess deficiencies related to the change or correction in your federal taxable income at any time. Therefore, the assessments issued by the department for 1988 were properly issued within the requisite statutory period under Virginia law.
You maintain adjustments were made to your federal income tax liability for years subsequent to 1988; however, no detail was given with regards to these adjustments. Furthermore, the department did not receive information from the I.R.S. reflecting such changes. If you overpaid your Virginia tax liability for years after 1988, Code of Virginia §58.1-1823(A) permits you to file a amended return claiming a refund within three years of the due date of the return or within ninety days of the final determination of any change or correction in your federal taxable income, whichever is later.
Accordingly, the 1988 assessments are correct. Attached is a schedule indicating the tax liability plus interest accrued through the date of this letter. The assessments should be paid in full within 30 days to avoid accrual of additional interest. Please forward your payment to the Office of Tax Policy, the Virginia Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282. Should you have additional questions regarding this matter, please contact*************.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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OTP/5588L
Rulings of the Tax Commissioner