Tax Type
Individual Income Tax
Description
Limitations on Assessment
Topic
Accounting Periods and Methods
Appropriateness of Audit Methodology
Collection of Delinquent Tax
Date Issued
10-15-1982
October 15, 1982
Taxpayer:
Re: § 58-1118. - FYE 7/75, 7/76
§ 58-151.0104 - Limitations on Assessment
Change in Federal Taxable Income
Dear ********************
This application for relief arises from two assessments which were based upon changes in federal taxable income made by the Internal Revenue Service more than three years after the Virginia returns had been filed. An initial determination was made on February 23, 1981 that no relief was warranted but allowed taxpayer the opportunity to request a hearing. Taxpayer did so and after hearing and reconsidering the merits, I again determine that no relief is warranted.
Facts
Taxpayer has timely filed federal and Virginia returns for all years involved. In its return for fiscal year ending July 1978 taxpayer had excess federal credits for investment tax credit and new jobs credit which were carried back to the federal returns for fiscal years ending July 1975 and July 1976. The Internal Revenue Service issued refunds for these years. Subsequently, the Internal Revenue Service audited taxpayer's returns and increased taxpayer's federal taxable income for the fiscal years ending July 1975 and July 1976. Because the federal limitation period on assessments had expired the Internal Revenue Service could not directly assess additional tax. However, the Internal Revenue Service did use the increased federal taxable income for these years in computing the credits and refunds allowed for these and subsequent years.
Taxpayer did not report the change in federal taxable income as required by § 58-151.0103. Upon audit by Department personnel, the Department assessed additional tax based on the revised federal taxable income for fiscal year ending July 1975 and July 1976.
Within 90 days taxpayer applied for relief under §58-1118 on the grounds that the Virginia assessment was barred by the three year limitation on assessments in § 58-151.0104.
Determination
Limitations are created exclusively by statute. As it happens, both the United States Congress and the Virginia General Assembly have enacted a similar general limitation: three years from the filing of a return. This limitation period applies both to assessments of additional tax and to claims for refund. Several exceptions to the general limitation have been created. One of the exceptions is contained in §58-151.0104 which allows an assessment at any time if the taxpayer fails to report a "change or correction increasing his federal taxable income...."
It is undisputed that the Internal Revenue Service changed or corrected taxpayer's income by increasing it. The fact that the Internal Revenue Service could only use the corrected income to limit or reduce a credit allowable in a later year has no impact on the effect of the corrected income under Virginia law.
Accordingly, your application for relief is denied. You will shortly receive a bill for the assessment with accrued interest to date. The bill should be paid within 30 days to prevent further accrual of interest.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner