October 23, 2024
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will respond to your letter in which you dispute the collectibility of the individual income tax assessments issued to your client, ***** (the “Taxpayer”), for the taxable years ended December 31, 1997, 1998, and 1999.
FACTS
The Taxpayer filed Virginia resident individual income tax returns for the 1997 and 1998 taxable years but did not pay the tax due. In addition, the Taxpayer failed to file a Virginia income tax return for the 1999 taxable year. As a result, the Department issued assessments. When balances remained due on them, the Department began collection actions.
After the Department issued a lien against the Taxpayer’s bank account in September 2011, no further collection actions were taken until June 2024 when the Department issued a lien against the Taxpayer’s wages. The Taxpayer then filed an application for correction, asserting that the assessments were no longer collectible because the 20-year statute of limitations had expired. Alternatively, the Taxpayer argues that, under Virginia Code § 58.1-1802.1 C, no penalty or interest should have accrued for all or a portion of the period the assessments were outstanding because the Department did not make any contact with him for more than seven years or file a lien in any jurisdiction in which he owned real estate.
ANALYSIS
Collection Statute of Limitations
Although Virginia Code § 58.1-1802.1 currently limits the Department’s collection actions to seven years from the date of assessment, even if collection action has been initiated within the seven-year period, the statute of limitations has been amended several times due to legislative action. The current statute of limitations applies only to assessments made on or after July 1, 2016. See Virginia Code § 58.1-1802.1 A. Because the assessments at issue were made prior to that date, the statute as currently enacted does not apply to the Taxpayer’s assessments.
Until 1990, Virginia law provided no limitation on the Department’s ability to collect assessments. In 1990, legislation was passed that required the Department to institute collection action within 20 years from the date of the assessment. This period of limitations was reduced from 20 years to 10 years from the date of assessment in 2010 and from 10 years to 7 years in 2012.
For assessments made prior to the 2016 amendments, it has been the Department’s longstanding policy that, as long as any collection action was initiated or made before the end of the period of limitations, collection could continue until the assessment was satisfied. A collection effort with regard to a taxpayer commences when it levies an assessment and encompasses all means of collecting taxes enumerated under Virginia statutes. In general, some form of collection action is usually taken early within the limitations period. See Public Document (P.D.) 14-177 (10/14/2014) and P.D. 23-27 (3/15/2023).
In this case, the 20-year statute of limitations applies because the assessments were issued prior to 2010. The Taxpayer argues that the statute has expired because he never received any collection notices until he received a wage lien notice in June 2024. According to the Department’s records, however, from December 1998 through September 2011, the Department issued various consolidated bill notices, a bank lien, and Treasury Offset Program (TOP) notifications concerning the assessments at issue, all of which the Department considers collection actions.
Penalty and Interest
For assessments issued before July 1, 2012, Virginia Code § 58.1-1802.1 C provided:
If the Department of Taxation has no contact with the delinquent taxpayer for a period of seven years and no memorandum of lien has been appropriately filed in a jurisdiction in which such taxpayer owns real estate, interest and penalty shall no longer be added to the delinquent tax liability. The mailing of notices by the Department to the taxpayer’s last known address shall constitute contact with the taxpayer.
The current version of this provision is the same, except that the period has been changed to six years. In this case, the Department’s last contact with the Taxpayer before the June 2024 notice was a lien notice dated September 13, 2011. In addition, the Department’s records do not indicate that a memorandum of lien was ever filed in any jurisdiction in which the Taxpayer owned real estate.
DETERMINATION
As discussed above, the Department initiated collection actions with respect to the assessments at issue within the 20-year statute of limitations period. As such, the Department considers the assessments to remain collectible until paid in full. Pursuant to Virginia Code § 58.1-1802.1 C, however, penalties and interest should not have accrued after September 13, 2018.
Based on the foregoing, the Department will adjust the assessments to remove any penalties and interest that accrued after September 13, 2018. The Taxpayer will then receive an updated bill. The Taxpayer should remit the balance due within 30 days of the bill date to avoid further collection actions.
The Code of Virginia sections cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at (804) ***** or *****@tax.virginia.gov.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/5011.Q