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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department Of Taxation
Chapter 110. Individual Income Tax
12/5/2021

23VAC10-110-90. Limitations on assessments.

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.)

Statutory Authority

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

Historical Notes

Derived from VR630-2-312; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

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