Tax Type
Corporation Income Tax
Description
Protective claim not filed within the statute of limitations.
Topic
Statute of Limitations
Date Issued
11-09-2012
November 9, 2012
Re: § 58.1-1821 Application: Corporate Income Tax
Dear *****:
This will reply to your letter in which you appeal the denial of a Virginia corporate income tax refund on behalf of your client, ***** (the "Taxpayer"), for the taxable years ended December 31, 2004 and 2005.
FACTS
The Taxpayer, a limited liability company, timely filed and paid the telecommunications minimum tax for the taxable years at issue.
In October 2008, the Taxpayer filed a protective claim for refund pursuant to the Virginia Supreme Court's decision in Virginia Cellular, LLC v. Virginia Department of Taxation, 276 Va. 486, 666 S.E.2d 374 (2008). In Chapters 37 and 152 of the 2009 Acts of Assembly, the General Assembly enacted bills equalizing the treatment of corporate and non-corporate telecommunications entities for purposes of the telecommunications minimum tax. This legislation is effective for taxable years beginning on and after January 1, 2004. On May 4, 2009, the Department rejected the Taxpayer's refund claim with regard to the Virginia Cellular case because of the actions taken by the General Assembly.
On May 11, 2009, the Taxpayer filed an addendum to its protective claim requesting a refund for overpayment of telecommunications minimum tax based on computational errors made on the original returns. The Department denied the refunds because the submission in May 2009 did not include an amended return. In addition, the Department concluded that the filings for the 2004 and 2005 taxable years were submitted beyond the statute of limitations. The Department reasoned that because the issues included in the May 2009 claim were not addressed in the Virginia Cellular decision, they could not be treated as an addendum to the October 2008 protective claim.
The Taxpayer appeals the denial of the refund, contending that nothing in the statute prevents a taxpayer from amending or adding to an outstanding protective claim pending before the Department. In addition, the Taxpayer asserts that the protective claim statute does not require the filing of a complete return, and its submission would qualify as a return under federal income tax rules.
DETERMINATION
Pursuant to the authority granted the Tax Commissioner under Va. Code § 58.1-1824, a protective claim for refund can be held pending the outcome of another case before the courts or the claim may be decided based upon its merits pursuant to Va. Code § 58.1-1821.
Multiple Issues
Under Title 23 of the Virginia Administrative Code (VAC) 10-20-190 B, when the Department determines to hold a protective claim without decision because it involves issues that depend upon resolution of a pending court case, the issues included in such protective claim "will be strictly limited to those issues which actually depend upon resolution of a pending case." The regulation goes on to say that all other issues included in such a protective claim will be decided on the merits. Based on the regulation, a protective claim that includes multiple issues may be filed and the Department may decide to address some of the issues based on the merits, while holding others without decision pending the resolution of a court case.
In this case, the Taxpayer filed a protective claim, which the Department held without decision pending the final resolution of the Virginia Cellular case. The issue was ultimately addressed by the General Assembly in legislation signed by the Governor in February 2009. See Chapter 37 of the 2009 Acts of Assembly. This legislation imposes the telecommunications minimum tax on pass-through entities effective January 1, 2004. Based on this legislation, the Taxpayer's protective claims for refund were denied on May 4, 2009.
On May 11, 2009, the Taxpayer introduced another issue that was not dependent on the court case. Because this claim was not filed until after the protective claim pursuant to the Virginia Cellular case was closed, it must be treated as a new protective claim and not another issue included in its Virginia Cellular claim.
Statute of Limitations
2004 Taxable Year
Virginia Code § 58.1-1824 provides that "any person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing for refund with the Tax Commissioner ...within three years of the date such tax was assessed." Pursuant to Va. Code § 58.1-1820, an assessment results when a notice is issued by the Department or a taxpayer self-assesses a tax by filing a Virginia return. Self-assessments are deemed to be made when a taxpayer pays a tax or when the return is filed.
For the 2004 taxable year, the Taxpayer filed its return on the extended due date, October 17, 2005. Under the statute, the statute limitations for filing a protective claim would have expired on October 17, 2008. This protective claim for the 2004 taxable year was not filed until May 2009.
2005 Taxable Year
For the 2005 taxable year, the Department had no record of receiving a timely filed return. As a result, the Department issued an assessment in November 2006. The Taxpayer eventually provided a copy of a telecommunications company minimum tax form (Form 500 T) in February 2008 and a corporate income tax return (Form 500) in October 2008.
In reviewing the protective claim for 2005, the Department determined that Form 500T did not constitute a return because the Taxpayer failed to include it with a properly executed Form 500. Because no return had been filed, the Department concluded that the protective claim had not been filed within the statute of limitations.
The Taxpayer asserts that it had filed a 2005 Virginia return before the extended due date. Because the Taxpayer had filed a valid extension and a timely return, it had three years from the extended due date to file a protective claim for refund. Thus, the Taxpayer asserts that it had until October 15, 2009 to file a protective claim for the 2005 taxable year.
The Taxpayer, however, admits that it only submitted a Form 500 T in October 2006. The concept of what constitutes a "return" for federal tax purposes, and its interplay with the statute of limitations, has been 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 Arthur J. Porth, 25 AFTR2d 70-961, 426 F2d 519 (1970); U.S. v. Ronald M. Long, 46 AFTR2d 80-5004, 618 F2d 74 (1980); and U.S. v. John M. Grabinski, 53 AFTR2d 84-710, 727 F2d 681 (1984).
Virginia Code § 58.1-202 7 grants the Tax Commissioner the authority to prescribe "the forms of books, schedules and blanks to be used in the assessment and collection of state taxes." Under Title 23 of the Virginia Administrative Code (VAC) 10120-320 C, every corporation required to file a return for a taxable year must complete a return as prescribed by the Department and provide a complete copy of the corporation's federal income tax return, including schedules and other information provided to the Internal Revenue Service.
Despite what might be considered to be a return for federal income tax purposes, the Department has been given express authority to prescribe the method for filing corporate income tax returns. Department instructions for telecommunications corporations require taxpayers to file a Form 500 and attach Form 500T. Because the Taxpayer failed to timely file Form 500, the Taxpayer failed to properly file its 2005 Virginia income tax return.
Because no return was properly filed, the self assessment would be deemed to have occurred when the tax was paid. In this case, the Taxpayer had paid enough estimated payments to cover its liability. As such, the date of payment would be the original due date of the tax return or April 17, 2006. See Va. Code § 58.1-453 B.
Accordingly, the statute of limitations for the Taxpayer to file a protective claim for refund expired on April 17, 2009. The Taxpayer did not file the protective claim for refund until May 11, 2009.
CONCLUSION
Based on the evidence provided and the clear statutory authority, the Taxpayer failed to timely amend its protective claim in conjunction with the Virginia Cellular case. In addition, its claims for the 2004 and 2005 taxable years were not filed within the statute of limitations provided under Va. Code § 58.1-1824. As such, the refunds claimed by the Taxpayer for the taxable years at issue must be denied.
The Code of Virginia sections and regulation cited 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, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
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- Tax Commissioner
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AR/1-4875070932.o
Rulings of the Tax Commissioner