Tax Type
Individual Income Tax
Description
Federal changes to taxable income; Refund statute of limitations
Topic
Payment and Refund
Statute of Limitations
Date Issued
03-29-1991
March 29, 1991
Re: §58.1-1821 Application: Individual Income Tax
Dear********************
This will reply to your letter of December 15, 1988 on behalf of the above referenced Taxpayers concerning their protest of an assessment arising out of federal changes to their taxable income for taxable year 1979 and the department's refusal to apply an overpayment of tax for taxable year 1978 to the additional tax liability owed for taxable year 1979.
FACTS
An agreement with the Internal Revenue Service (IRS) resulted in an increase in the Taxpayers' federal taxable income for taxable year 1979. The department was notified of this change by the IRS and notified the Taxpayers by letter dated December 17, 1987 of the resulting increase in Virginia taxable income and resulting additional tax due plus interest.
By letter dated January 31, 1988, the Taxpayers provided the department with the information to be used in amending the 1979 return as well as its 1978 return. The Taxpayers reported that while the agreement with the IRS resulted in an increase in their federal taxable income for taxable year 1979, it also resulted in a decrease in their federal taxable income for taxable year 1978. The Taxpayers requested that the overpayment in Virginia tax for taxable year 1978 be used to offset the additional tax due for 1979 with any remaining refund being sent to them.
The department issued an assessment for taxable year 1979 but did not apply the 1978 overpayment because the 1978 return was not amended within 60 days from the final determination of the IRS as required by Va. Code §58.1-1823.
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.
The Taxpayers were notified by the IRS through its Explanation of Adjustment dated August 28, 1987 that they should file an amended state return if the federal change affected their state income tax liability.
The department, however, was initially notified by the IRS of the increase in the Taxpayers' federal taxable income for taxable year 1979 and notified the Taxpayers of the increase in Virginia taxable income and resulting additional tax plus interest due by letter dated December 17, 1987. The Taxpayers responded to the department's letter by letter dated January 31, 1988, requesting that the overpayment of tax for taxable year 1978 be applied against the additional tax due for taxable year 1979. Ninety-four days lapsed between the date of the IRS notice to the Taxpayers (October 29, 1987) and the date of the Taxpayers' letter regarding its change in federal taxable income to the department (January 31, 1988). Thus, the Taxpayers did not meet the 60 or 90 day time limitation required by law as explained above.
Failure to exercise one's right to claim a refund amounts to a waiver of the 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 an offset of tax for 1979 and their right to claim a refund for the tax overpaid for taxable year 1978 lapsed.
You argue that since the Virginia tax laws adopt the Internal Revenue Code (IRC) as the basis for taxation of individuals, the mitigation provisions of IRC §§1311 et seq. apply to the instant case and the Taxpayers are entitled to a refund of taxes resulting from their 1978 and 1979 changes in federal taxable income. Virginia law, however, does not contain mitigation provisions similar to those found in the federal law.
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 1978.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner