Virginia granted a refund claim more than 13 years after the original tax return was due in Ruling of the Commissioner PD 14-168 on Sept. 12th. While this result might seem surprising, it makes more sense after reading the fine print regarding federal changes.
The ruling came after a corporate taxpayer received a final determination in August 2012 from the IRS with respect to its federal tax years 2001 and 2002. The result of the changes was to generate NOLs that were appropriately carried back to its 2000 federal tax year.
The taxpayer filed an amended Virginia income tax return for the year 2000 reporting the NOL carryback and requested a refund of Virginia income tax.
The Virginia Department of Taxation denied the request on the grounds that the refund claim was not filed within three years of the original due date of the return.
The taxpayer appealed to the Virginia Tax Commissioner and the Commissioner issued his ruling on Sept. 12, 2014 granting the taxpayer’s refund claim. The Commissioner even apologized for the delay in the ruling.
For Virginia refund claims arising from federal changes, Va. Code Ann. § 58.1-311 states that a taxpayer has one year from the date of a final determination of a federal change to file a claim for refund. Also, Va. Code Ann. § 58.1-1823(A) provides that a refund claim may be made within one year of a final determination of any change or correction for any federal tax. Virginia law is effectively coupled with federal law on the issue of NOLs and carrybacks exclusive of the five-year carryback provisions.
It would appear that the department made an argument that an NOL couldn’t be carried back to a tax year beyond the standard three-year refund window. In effect, that the NOL as applied to the 2000 tax year didn’t result from a federal change. Or, they made a mistake. The only real question is why the taxpayer was required to appeal to the Tax Commissioner in order to get it resolved.
In case there is any doubt, the ultimate authority on the subject is very clear. The instructions to Virginia Form 500 state that “a corporation may file an amended return to claim a refund within the later of … one year from the final determination of any change or correction in the liability of the taxpayer for any federal tax.”
When in doubt in tax or in life, always read the instructions.
By Chris Bailey
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