Tax Type
Individual Income Tax
Description
Taxpayer's due process rights were not denied; Amended returns
Topic
Appeals
Payment and Refund
Date Issued
04-10-2006
April 10, 2006
Re: § 58.1-1821 Application: Individual Income Tax
Dear *******************:
This is in reply to your letter in which you seek correction of an individual income tax assessment issued to ***** (the "Taxpayer") for the tax year 2002. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer was a part-year resident of Virginia during the 2002 taxable year. In March 2003, the Taxpayer filed a 2002 individual income tax return as a full year resident (the "original return"). The Department issued a refund for a portion of the overpayment claimed on the return. The remaining balance was held pending the resolution of a claim filed by the ***** (the "County") under the Set-Off Collection Act (Va. Code § 58.1-520 et seq.). In November 2003, a portion of the pending overpayment was withheld to satisfy the County's claim and the remainder was refunded to the Taxpayer with interest.
Prior to receiving the remainder of the refund, the Taxpayer realized his error in filing the original return as a full year resident and, in April 2003, filed an amended 2002 return as a part-year resident (the "amended return"). This return reported a lower overpayment amount but was not processed until December 2003. The Department issued an assessment to recover the portion of the refund overpaid to the Taxpayer. The Taxpayer paid the assessment with the exception of the portion of the refund that the Department remitted to the County pursuant to the Set-Off Collection Act.
The Taxpayer contends that at the time the Department transmitted the set-off payment to the County, the taxes he owed equaled the taxes he paid. He requests that the Department abate the assessment issued for the 2002 taxable year.
DETERMINATION
Title 23 of the Virginia Administrative Code ("VAC") 10-380-10, provides that:
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- The purpose of the Set-Off Collection Act (§ 58.1-520 et sep. of the Code of Virginia) is to establish as policy that all claimant agencies and the Department of Taxation shall cooperate in identifying debtors who owe money to the Commonwealth or its counties, cities and towns through its various claimant agencies and who qualify for refunds from the Department. It is also the intent of this Act that procedures be established for setting off against any such refund the sum of any delinquent debt owed to the Commonwealth. Furthermore, it is the legislative intent that this Act be liberally construed so as to effectuate these purposes as far as legally and practically possible. The set-off procedure augments rather than replaces existing collection procedures. [Emphasis added.]
Deemed Refund
The Taxpayer rightly states that an overpayment must exist in order for the Department to match a refund against a claim. He then asserts that the amount transmitted to the County was not a refund to him because his tax payments equaled his tax liability. The Taxpayer provides a detailed computation to show that his payments satisfied the erroneous refund checks issued to him.
The Taxpayer's computation fails to account for the full amount of the overpayment he claimed on his original return filed as a Virginia full year resident. Because of the County's claim, the Department did not issue a check to the Taxpayer for the full amount of the overpayment claimed on the original return. As such, while the Taxpayer's computation shows the actual monetary transaction that occurred directly between the Department and the Taxpayer, it fails to include the overpayment from the original return that was withheld under the Department's set-off program.
Pursuant to Title 23 VAC 10-110-60 B 2, "a tax refund which has been transmitted to a claimant agency pursuant to a final debt set-off is deemed to have been paid to the taxpayer." As such, the portion of the overpayment claimed by the Taxpayer on his original return that was withheld and remitted to the County is deemed to be a refund paid to the Taxpayer.
The regulation further provides that when an overpayment claimed on an amended return is less than that claimed on the original return, and the prior overpayment has been remitted to a claimant agency, "the taxpayer will be liable for payment to the Department for the difference between the original overpayment and the amount shown on the amended return, as though the original refund had been made directly to the taxpayer." In this case, the Taxpayer's overpayment on the amended return is less than the overpayment claimed on the original return. Accordingly, the Taxpayer is liable for the amount remitted to the County.
Due Process
The Taxpayer states that he has no due process right to appeal the County's determination that he owed it money because no refund was owed by the Department to him. The Taxpayer further states that he did not receive an appropriate response to his appeal from the County, thereby denying him of his rights to due process as provided by Va. Code § 58.1-527.
Based on statements made by the Taxpayer, he appealed the assessment to the County and received a response prior to the Department being advised to transfer the required amount to the County. Therefore, I cannot agree that the Taxpayer's due process rights were denied.
Furthermore, under Va. Code § 58.1-526, a claimant agency must, upon written request, grant a hearing to determine whether a claim is valid. In the case of a set-off resulting from delinquent local taxes, the scope of the hearing is limited to determining whether the tax obligation remains due. Such a hearing may not address the underlying basis of the tax obligation. Virginia Code § 58.1-527 permits a taxpayer to seek a judicial review of a decision of a claimant agency resulting from a hearing under Va. Code § 58.1-526. A petition must be filed within 30 days of the claimant agency's decision.
As noted in the Department's letter of November 10, 2003, the County directed the Department to release the amount withheld from the original refund. As such, the Department must assume that the Taxpayer was allowed sufficient time to exercise his rights under Va. Code §§ 58.1-526 and 58.1-527.
Further, Va. Code § 58.1-3980 permits a taxpayer to apply to a local assessing officer for a correction of certain local assessments. A taxpayer also has the right to apply for relief from a local tax assessment to the circuit court of the locality wherein such assessment was made. See Va. Code § 58.1-3984. These remedies are available after a local tax assessment is made and afford a taxpayer sufficient due process to have his issues heard.
In this case, the Taxpayer has had, and may still have opportunities to contest the local assessment. The Taxpayer will have to contact the County to determine his rights for appealing the local tax assessment.
CONCLUSION
In accordance with the above, the assessment is correct and remains due and payable. Payment of the balance due, as shown on the enclosed schedule, should be remitted within 30 days from the date of this letter in order to avoid the accrual of additional interest. Payment should be sent to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *****. If payment is not received within the time specified, interest will accrue on the outstanding balance and collection action will resume.
The Code of Virginia sections cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, please contact ***** at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/52611E
Rulings of the Tax Commissioner