Tax Type
Corporation Income Tax
Description
Assessment and payment of deficiency; Notice requirement met
Topic
Collection of Tax
Date Issued
05-16-1997
May 16, 1997
Re: § 58.1-1821 Application: Corporate Income Tax
Dear**************
This will reply to your letter concerning an assessment of corporate income taxes to ************ (the "Taxpayer") for the taxable years ending May 1989 and May 1991 (the "1989 and 1991 taxable years") and the denial of a refund request for the taxable years ending May 1988 and May 1990 (the "1988 and 1990 taxable years"). I apologize for the delay in responding.
FACTS
The Taxpayer's federal corporate income tax returns for the taxable years ending May 1988 through May 1992 were adjusted by the Internal Revenue Service (IRS). The Taxpayer's federal taxable income was increased for the 1989 and 1991 taxable years, resulting in additional tax liabilities. For the 1988 and 1990 taxable years the federal taxable income was decreased, resulting in overpayments. There was no resulting liability or overpayment for adjustments made to the taxable year ended May 1992.
Based on the federal adjustments, the Taxpayer filed amended Virginia returns with the department in February 1995, with a payment of and requested that the tax liabilities for the 1989 and 1991 taxable years be offset by the overpayments for the 1988 and 1990 taxable years. The department subsequently notified the Taxpayer by letter dated October 12, 1995, that the refunds were denied because the request was not filed within the period prescribed by Code of Virginia § 58.1-1823. An assessment was issued for additional tax and accrued interest for the 1989 and 1991 taxable years.
You hereby protest the denial of the refund request because you believe the final determination for the federal adjustments did not occur until the Taxpayer submitted the federal return for the taxable year ended May 1994 (the "1994 taxable year") pursuant to a payment agreement made with the IRS. You also contend that the Taxpayer did not receive proper notice of the assessment made by the department because it was sent to an incorrect address. Finally, you request the department allow the loss for the 1994 taxable year as reported on the Form 500-NOLD submitted with this appeal.
DETERMINATION
Pursuant to Code of Virginia § 58.1-1823, an amended return claiming a refund may be filed within three years of the due date of the return or, if later, within ninety days from the final determination of a change in the taxpayer's federal taxable income. In this case, the amended return refund request was filed more than three years after the due date of the returns. Consequently, a refund may be issued only if the request was filed within ninety days from the date of the final IRS determination.
The audit report issued by the IRS for the federal adjustments was dated August 31, 1993. Subsequent settlement arrangements made with the IRS did not affect the federal adjustments, rather it only established a payment agreement for such adjustments. Consequently, the final determination for the change to the Taxpayer's federal taxable income was August 31, 1993, when the audit report was issued. The Taxpayer did not file amended returns with the department until February 1995, which was beyond the ninety day period prescribed by law. As such, the department does not have the necessary statutory authority to issue refunds for the 1988 and 1990 taxable years.
Enclosed are previous rulings issued by the department where refund offset requests were denied in situations similar to yours. See Public Documents (P.D.) 96-137 (6/17/96), 95-155 (6/13/95), 93-108 (4/28/93), and 90-20 (1/11/90), copies enclosed.
Code of Virginia § 58.1-312 allows the department to make an assessment at any time when the taxpayer fails to comply with Code of Virginia § 58.1-311 and report a change within ninety days of the IRS final determination where there is an increase to the taxpayer's federal taxable income. Further, pursuant to Code of Virginia § 58.1-1820, an assessment is deemed issued by the department when a written notice is mailed to the taxpayer at his last known address. The department notified the Taxpayer of the assessment for the 1989 and 1991 taxable years via a letter dated October 12, 1995. The letter was mailed to the Taxpayer's last known address as maintained on the department's master mailing list.
Although I am sympathetic to the Taxpayer's situation, the department must comply with the statutory restrictions with respect to refunds as specified in Code of Virginia § 58.1-1823. Accordingly, pursuant to longstanding written policy, your request for the department to issue refunds for the 1988 and 1990 taxable years as a result of the federal adjustments must be denied. The Taxpayer's Form 500-NOLD application for refund for the loss reported for the 1994 taxable year, however, will be processed and the appropriate accounts adjusted. You will be notified under separate cover of the revised assessment amounts. Should you have any questions, you may contact ******* of my staff at **** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11265M
Rulings of the Tax Commissioner