Tax Type
Individual Income Tax
Description
Adjustment to FAGI by I.R.S.; Refund statute of limitations
Topic
Accounting Periods and Methods
Returns and Payments
Statute of Limitations
Taxable Income
Date Issued
11-14-1990
November 14, 1990
Re: §58.1-1821 Application: Individual Income Tax
Dear ****
This will respond to your letter of April 10, 1989 in which you request a refund of taxes resulting from adjustments to federal taxable income for taxable year 1984.
An audit of the Taxpayers by the Internal Revenue Service (IRS) for taxable year 1985 resulted in an increase in federal taxable income because of interest deductions which should have been taken the previous year. The department was notified of this change by the IRS and billed the Taxpayers for the additional Virginia tax due plus interest, which the Taxpayers paid.
In April 1988, the Taxpayers received a refund from the IRS for taxable year 1984 because of the additional interest deductions. The Taxpayers wrote to the department on February 7, 1989 requesting a refund for taxable year 1984. However, because the statute of limitations for taxable year 1984 had expired, their refund request was denied.
The Taxpayers contend they did not contact the department earlier regarding the 1984 change as they were under the impression that the department would make the same corrections that the IRS had made with respect to taxable years 1984 and 1985.
Thus, they are requesting a refund of the tax due as a result of the decrease in federal taxable income for taxable year 1984.
Va. Code §58.1-311 requires that if an individual taxpayer's federal taxable income reported on his federal income tax return for any taxable year is changed or corrected by the IRS, the taxpayer is required to report such changes or corrections to the department within 90 days after the final determination of such change. However, pursuant to Va. Code §58.1-1823, any return claiming a refund for overpayment of tax must be filed within 60 days of the final determination of any change in federal tax liability. Thus, it is the responsibility of a taxpayer to contact the department when there is any change in federal taxable income.
In the instant case, the department was notified by the IRS of the increase in the Taxpayers' federal taxable income for taxable year 1985 and billed the Taxpayers for the additional tax due plus interest. Va. Code §58.1-312 gives the department the authority to assess the tax due when a taxpayer fails to report a change or correction increasing his federal taxable income or file an amended return.
The Taxpayers were notified by the IRS through its Explanation of Adjustments dated March 2, 1988 that they should file an amended state return if the federal change affected their state income tax liability. An amended return claiming a refund of tax overpaid for taxable year 1984 could have been filed by the Taxpayers within 60 days of the federal change in taxable income as provided in Va. Code §58.1-1823. Failure to exercise this right to claim a refund amounts to a waiver of one's right to such a refund. Consequently, when the Taxpayers failed to file an amended return within the 60 day statutorily required period, their right to claim a refund for the tax overpaid for taxable year 1984 lapsed.
Therefore, while I empathize with the Taxpayers' situation, without the statutory authority to issue refunds after the time prescribed by law, I find no basis for granting the Taxpayers' request for a refund for taxable year 1984.
Sincerely,
W. H. Forst
Tax Commissioner
Re: §58.1-1821 Application: Individual Income Tax
Dear ****
This will respond to your letter of April 10, 1989 in which you request a refund of taxes resulting from adjustments to federal taxable income for taxable year 1984.
FACTS
An audit of the Taxpayers by the Internal Revenue Service (IRS) for taxable year 1985 resulted in an increase in federal taxable income because of interest deductions which should have been taken the previous year. The department was notified of this change by the IRS and billed the Taxpayers for the additional Virginia tax due plus interest, which the Taxpayers paid.
In April 1988, the Taxpayers received a refund from the IRS for taxable year 1984 because of the additional interest deductions. The Taxpayers wrote to the department on February 7, 1989 requesting a refund for taxable year 1984. However, because the statute of limitations for taxable year 1984 had expired, their refund request was denied.
The Taxpayers contend they did not contact the department earlier regarding the 1984 change as they were under the impression that the department would make the same corrections that the IRS had made with respect to taxable years 1984 and 1985.
Thus, they are requesting a refund of the tax due as a result of the decrease in federal taxable income for taxable year 1984.
DETERMINATION
Va. Code §58.1-311 requires that if an individual taxpayer's federal taxable income reported on his federal income tax return for any taxable year is changed or corrected by the IRS, the taxpayer is required to report such changes or corrections to the department within 90 days after the final determination of such change. However, pursuant to Va. Code §58.1-1823, any return claiming a refund for overpayment of tax must be filed within 60 days of the final determination of any change in federal tax liability. Thus, it is the responsibility of a taxpayer to contact the department when there is any change in federal taxable income.
In the instant case, the department was notified by the IRS of the increase in the Taxpayers' federal taxable income for taxable year 1985 and billed the Taxpayers for the additional tax due plus interest. Va. Code §58.1-312 gives the department the authority to assess the tax due when a taxpayer fails to report a change or correction increasing his federal taxable income or file an amended return.
The Taxpayers were notified by the IRS through its Explanation of Adjustments dated March 2, 1988 that they should file an amended state return if the federal change affected their state income tax liability. An amended return claiming a refund of tax overpaid for taxable year 1984 could have been filed by the Taxpayers within 60 days of the federal change in taxable income as provided in Va. Code §58.1-1823. Failure to exercise this right to claim a refund amounts to a waiver of one's right to such a refund. Consequently, when the Taxpayers failed to file an amended return within the 60 day statutorily required period, their right to claim a refund for the tax overpaid for taxable year 1984 lapsed.
Therefore, while I empathize with the Taxpayers' situation, without the statutory authority to issue refunds after the time prescribed by law, I find no basis for granting the Taxpayers' request for a refund for taxable year 1984.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner