Tax Type
Corporation Income Tax
Description
Refund statute of limitations; Adjustments to Federal Taxable Income
Topic
Computation of Income
Payment and Refund
Statute of Limitations
Date Issued
08-19-1991
August 9, 1991
Re: §58.1-1821 Application; Corporation Income Tax
Dear****************
This will reply to your letter of March 16, 1990 in which you protest the denial of a refund of corporation income tax for **************(the "Taxpayer"). We have treated your letter as an application for correction of an erroneous assessment under Va. Code §§58.1-1821 and 58.1-1823.
FACTS
The taxpayer and the I.R.S. Appeals office entered into an agreement to settle an audit. The agreement involved an increase in federal taxable income for the taxable year ended June 30, 1983, and a decrease for the taxable year ended June 30, 1984. Because the decrease resulted in a refund in excess of ********** the agreement required review by the Joint Committee on Internal Revenue Taxation pursuant to Internal Revenue Code (IRC) §6405.
The taxpayer was notified by the I.R.S. Appeals office on September 21, 1988, that the Committee had taken no exception to the agreement; an I.R.S. notice dated December 12, 1988, confirmed that no tax was due for the taxable year ended June 30, 1984. The taxpayer did not notify the Department of Taxation of the change in federal taxable income for either year until it filed amended returns on February 17, 1989. The refund was denied because the amended return was filed more than 60 days after the date of the letter notifying the taxpayer that the agreement changing federal taxable income had become final.
You contend that there was no final determination of federal tax liability until the federal tax was paid and that the amended Virginia return claiming a refund was filed within the limitations period prescribed in Va. Code §58.1-1823. In addition, you question how the limitations period could expire for the amended return claiming a refund, yet the department accepted the tax due on the amended return reporting additional tax.
DETERMINATION
Although all changes in federal taxable income must be reported to the Department of Taxation, different time periods are established for the department's authority to assess additional tax and issue refunds based on a federal change. Under Va. Code §58.1-312 the period in which the department can assess additional tax does not begin to run until the taxpayer reports the change, and the department has one year after the report to assess additional tax.
The department was not notified of the change in federal taxable income until the amended returns were filed on February 17, 1989. The additional tax due was paid with the amended return for the taxable year ended June 30, 1983; only accrued interest was billed.
Va. Code §58.1-1823 provides that an amended return for refund must be filed within three years from the last day prescribed by law for the timely filing of the return, or within 60 days from the final determination of any change in the taxpayer's federal tax upon which the state tax is based, whichever is later. The amended return for refund was filed more than three years after the due date of the original return. Therefore, it is timely filed only if filed within 60 days from the date of final determination of federal tax liability.
You contend that you continued to negotiate with the I.R.S. after the agreement had been accepted by the Committee, but you have not shown that any change in federal taxable income resulted from these negotiations. You claim that an I.R.S. notice dated February 13, 1989, was the "final determination." However, that notice is a bill for the additional federal tax due for the taxable year ended June 30, 1983, and refers to earlier bills for the amount. In other words, it is merely an attempt to collect the amount that the I.R.S. had determined to be due at an earlier date.
Even assuming the "continuing negotiations" did result in a substantive change, the notice from the I.R.S. dated December 12, 1988, indicating no tax due for the taxable year ended June 30, 1984, indicates that negotiations were concluded on or before that date. The amended returns were still filed more that 60 days after that notice.
Accordingly, I find that the "final determination of a change in federal taxable income," as that term is used in Va. Code §58.1-1823, occurred no later than December 12, 1988, when the taxpayer was notified that there was no tax due for the taxable year ended June 30, 1984. Since the amended return claiming a refund was filed more than 60 days after this date, and more than three years after the due date of the original return, the refund claim was properly denied.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner