Tax Type
Corporation Income Tax
Description
Interest; Net operating loss; Date on which interest accrual ends
Topic
Collection of Tax
Date Issued
12-20-1996
December 20, 1996
Re: §58.1-1821 Application: Corporation Income Tax
Dear*************
This is in response to your correspondence in which you are requesting a refund of interest paid in connection with an assessment of corporation income tax against*******************(the "Taxpayer") for the taxable years of 1983, 1984, and 1986. apologize for the delay in responding.
FACTS
Based on audits by the Internal Revenue Service ("IRS"), the Taxpayer filed amended Virginia returns reporting the additional federal taxable income for 1983, 1984, and 1986, and the net operating loss ("NOL") carryback deductions from 1985, 1987, and 1988. Assessments of additional tax and interest were issued for the tax years 1983, 1984, and 1986. Interest was assessed on the additional Virginia tax attributable to the increase in federal taxable income for the period between the original due dates of the 1983, 1984, and 1986 returns and September 8,1994, the date that the assessment was made by the department. The tax was subsequently offset by the NOL carryback deductions.
The Taxpayer paid the interest assessments on March 7,1995, but contends that the accrual of interest should end on the date the Virginia return was due for the loss years.
DETERMINATION
Pursuant to Code of Virginia §58.1-1812, interest is required to be assessed for the period between the due date and the date of full payment. There is no provision defining, for purposes of Code of Virginia §58.1-1812, when payment occurs if a net operating loss deduction is involved. However, when a net operating loss deduction results in a refund, Code of Virginia §58.1-1833 defines the date of overpayment to be the date the loss year return was filed or the last day prescribed by law for such filing, whichever is later.
According to department records, the returns for the loss years 1985, 1987, and 1988 were filed October 15,1986, May 15,1988, and October 15, 1989, respectively. These losses have the effect of reducing the total tax for 1983,1984, and 1986 to zero at the time the loss years' returns were filed. As such, the additional assessments made pursuant to the IRS audit are considered to be paid when the loss years' returns were filed.
Accordingly, the assessment of interest for 1983, 1984, and 1986 will be adjusted to reflect the date the loss years' returns were filed. A refund will be processed in due course and include additional interest from the date the interest assessments were paid. The attached schedule details the refund calculation.
If you have any questions regarding this matter, you may contact ********************at******************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/110670
Rulings of the Tax Commissioner