96-360 | Virginia Tax

Tax Type

Corporation Income Tax

Description

Time limitations for assessment and collection; Unauthorized switch to combined filing

Topic

Collection of Tax

Date Issued

12-09-1996

December 9,1996

Re: §58.1-1821 Application: Corporate Income Taxes

Dear**********

This will respond to your letter in which you seek correction of assessments of additional corporate income taxes to********************(the "Group") for the 1989 and 1990 taxable years.

FACTS

The individual Group members filed separate Virginia corporate income tax returns prior to 1989. Commencing with the return for the 1989 taxable year, the Group filed thereafter on a combined basis. On September 22,1992, after filing combined returns for the 1989 and 1990 taxable years, the Group requested permission to change its filing method from separate to combined, beginning with the taxable year ended December 31, 1989. This request was addressed by the department in Public Document (P.D.) 93-153, (7123193), copy enclosed. The department specifically denied permission to file combined returns for 1989 and 1990, while granting permission to file on a combined basis for 1991 and thereafter.

In P.D. 93-153, the department stated that the 1989 and 1990 returns had to be resubmitted on a separate basis within thirty days. The returns were never resubmitted. Subsequently, assessments dated April 15, 1996 and April 17,1996 were made against individual Group members, whose Virginia tax liability had been computed on a separate basis based on the information contained in the combined filing. You aver that the filing of the combined returns for the 1989 and 1990 taxable years commenced the statute of limitations, and consequently believe that the assessments are invalid under Virginia law.

DETERMINATION

Code of Virginia §58.1-104 states in pertinent part:

- Except as otherwise provided in Chapters 3 [income tax] and 6 [retail sales and use tax] of this title, 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.

The last days prescribed by law for the timely filing of Virginia corporate income tax returns by Group members for the 1989 and 1990 taxable years were the extended due dates of October 15,1990 and 1991, respectively. The contested assessments were clearly not issued within three years from those dates. For the assessments to be valid, therefore, they must fall within one of the exceptions to the three year general rule.

Code of Virginia §58.1-312 states in pertinent part:

- The tax imposed by this chapter may be assessed at any time if no return is filed.

The determining issue in this case then becomes whether the combined returns filed without first obtaining permission from the department constitute "returns" for purposes of Code of Virginia § 58.1-312. You have cited Code of Virginia § 58.1-301 as support for your contention that Virginia law must follow federal law in determining what actually constitutes a return.

Code of Virginia § 58.1-301 provides that terms used in Virginia tax law will have the same meaning as those same terms have in federal tax law, "unless a different meaning is clearly required." You believe that this statute requires that Virginia utilize the definition of "return" as it has been defined by federal law.

The concept of what constitutes a "return" for federal tax purposes, and its interplay with the statute of limitations, has been an issue repeatedly adjudicated since the imposition of the federal income tax. Generally, a "return" is considered valid if it contains enough information to permit the Internal Revenue Service to compute a taxpayer's liability. See U.S. v Long, 46 AFTR2d 80-5004; U.S. v Grabinski, 53 AFTR2d 84-710; and U.S. v Porth, 25 AFTR2d 70-961. Applying this definition of a "return" as developed by the courts to the instant case would result in the combined filings for the 1989 and 1990 taxable years being considered returns, and thus invalidate the assessments, if a different meaning of what constitutes a return is not clearly required under Virginia law.

Code of Virginia §58.1-442 specifically states that affiliated corporations may file either separate, combined, or consolidated returns, and that once an election is made it is irrevocable unless permission to change is granted. The department feels that such specific direction from the legislature clearly requires a different meaning of "return" than that which is given by federal case law, because if a taxpayer could be considered as having filed a valid return merely by supplying enough information necessary to compute the tax there would have been no need for the statutory classifications of filing methods. Your argument, however, essentially negates the intent of the legislature by disregarding the plain language requiring permission to change. Since the permission to change filing methods for the 1989 and 1990 taxable years was not granted by the department, the individual Group members were required to file on a separate basis. These returns were never filed, and consequently an assessment may be issued at any time pursuant to Code of Virginia §58.1-312.

Accordingly, the assessments as issued by the department are upheld. The balance due as reflected on the enclosed schedule, which includes interest through the date of this letter, must be paid within thirty days to prevent the additional accrual of**************interest. Please send your payment to*********** Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880. If you should have any questions regarding this determination, you may contact**********directly at********************

Sincerely,

Danny M. Payne
Tax Commissioner

OTP/11461G

Rulings of the Tax Commissioner