Section 40. Limitations on assessments

A. In general. 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 below.

1. Failure to file a return. When any corporation fails to file a return as required by law, an assessment may be made at any time.

2. False or fraudulent return. If any corporation 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 corporation fails to report a change or correction which increases its federal taxable income as required by § 58.1-311 of the Code of Virginia, 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, before the expiration of the statute of limitations, agree to extend the period for assessing the tax beyond such statute, the tax may be assessed at any time prior to the expiration date of 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 § 58.1-311 of the Code of Virginia, 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 is 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 period specified in this subsection, e.g., filing of a false or fraudulent return, such other provision shall prevail.

6. Carryback deficiencies. Any deficiency which is attributable to the carryback of a net operating loss or net capital loss may be assessed at any time 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, an assessment relative to such deficiency may be assessed within the statute of limitations applicable to taxable year 1983.

7. Recovery of erroneous refund.

a. 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 chapter, the term "erroneous refund" means the issuance of a 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 error, 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.

Historical Notes

Derived from VR630-3-312, eff. January 1, 1985.

Statutory Authority

§§ 58.1-203 and 58.1-312 of the Code of Virginia.