Current through Register Vol. 41, No. 3, September 23, 2024
A.
Generally. Except as otherwise provided, the department must assess any tax
deficiency within three years from the date the tax was due and payable. See
§ 58.1-104 of the Code of Virginia.
B. Exceptions. The three-year statute of
limitations for assessment shall not be applicable to the situations set forth
in subdivisions 1 through 8 of this section.
1. Failure to file a return. When any
individual fails to file a return as required by law, an assessment may be made
at any time.
2. False or fraudulent
return. If any individual files a false or fraudulent return with intent to
evade the tax legally due, an assessment may be made at any time.
3. Failure to report change in federal
income. When any individual fails to report a change or correction which
increases his federal taxable income as required by
23VAC10-110-70, fails to report a
change or correction in federal taxable income which is treated as a deficiency
for federal purposes, or fails to file an amended return as required by law,
the tax may be assessed at any time.
4. Waiver. When the department and the
taxpayer have, before the expiration of the statute of limitations, agreed to
extend the period for assessing the tax beyond the expiration date of such
statute of limitations, the tax may be assessed at any time prior to the
substituted expiration date provided for in such agreement. Subsequent
agreements further extending the period of assessment may be executed prior to
the expiration date of the previous agreement. Any agreement waiving and
extending the statutory assessment period must be in writing and must clearly
specify the date to which the assessment period has been extended. Any such
extension will also extend the period in which a taxpayer may file an amended
return claiming a refund. See §§ 58.1-101, 58.1-1823 of the Code of
Virginia.
5. Report of change or
correction in federal income. When any taxpayer reports a change or correction
or files an amended return pursuant to an increase in federal taxable income
pursuant to
23VAC10-110-70, or reports a
change or correction in federal taxable income which is treated as a deficiency
for federal purposes, an assessment may be made at any time within one year
after such report, correction, or amended return is filed. Any additional tax
assessed pursuant to this provision may not exceed the amount of additional
Virginia tax due as a result of the federal change or correction. However, an
assessment for additional amounts due which are not attributable to the federal
change or correction may be made provided such assessment is made within the
otherwise applicable statute of limitations. Further, if any other provision of
law allows the assessment of tax during a period which exceeds the one-year
statute of limitations contained in this subsection, e.g., filing of a false or
fraudulent return, such other provision shall prevail.
6. Carry-back deficiencies. Any deficiency
which is attributable to the carry-back of a net operating loss or net capital
loss may be assessed at any time within the statute of limitations within which
an assessment may be made for the taxable year in which the loss occurred. For
example, if a taxpayer incurs a net operating loss in taxable year 1983 and a
portion of the loss is carried back to taxable year 1980 resulting in a refund
for taxable year 1980, and a subsequent audit reduces or eliminates the loss
which was carried back to 1980, assessment relative to such deficiency may be
assessed within the statute of limitations applicable to taxable year
1983.
7. Recovery of erroneous
refund.
a. Generally. An erroneous refund of
tax shall be considered an underpayment of tax on the date the refund is made.
An assessment for recovery of the erroneous refund may be made within two years
of the date such refund is made except that recovery may be made within five
years if any part of the refund was the result of fraud or misrepresentation of
a material fact.
b. Erroneous
refund defined. As used in this regulation, the term "erroneous refund" means
the issuance of refund to which a taxpayer is not entitled. Where a taxpayer
provides complete and current information and an erroneous refund results from
a departmental error, such as a clerical error, the department is limited to
recovery within the two year statute of limitations.
However, the department may make an assessment for recovery
of the amount erroneously refunded within five years from the date of the
refund if the issuance of the erroneous refund results from a misrepresentation
of a material fact by the taxpayer, including inadvertent taxpayer errors,
e.g., the omission of information or the incorrect listing of information which
has a direct bearing on the computation of Virginia taxable income or tax
liability.
8.
Request for prompt assessment. When a return is required to be filed for a
decedent during the period of administration of such decedent's estate, the
executor, administrator, or other person representing the estate may request in
writing (after the filing of the decedent's return) that the department issue a
prompt assessment for any deficiency arising from such return. Upon such
request, the department shall issue any applicable assessment within 18 months
of the request. Nothing in this subsection shall be construed as extending the
period of limitations for assessment beyond three years from the date the
return was filed or limiting the assessment period where otherwise provided by
law.
C. Retention of
records. Every individual who is required to file an income tax return must
maintain records to substantiate the information provided therein. Such records
must include that information sufficient to establish the amount of gross
income, deductions, credits, or other matters required to be shown in any tax
return, including a copy of the complementary federal income tax return and
supporting schedules for the given taxable year. (See
23VAC10-20-90 for additional
record retention requirements.)
