Under the Code of Virginia, Section 58.1-104, and the Virginia Tax Administrative Code, the tax department must assess tax deficiencies within 36 months from the date the taxpayer's tax liabilities were due. The taxpayer and the tax department may waive the limitations period and extend it by written agreement. The taxpayer will have additional time to file an amended return for a tax refund if the parties extend the statute of limitations. There are exceptions to this three-year statute of limitations in specific cases.
Statute of Limitations for Failure to File a Return, Fraudulent Returns or Failure to Report Change
The statute of limitations for failure to file a return is unlimited. The Virginia tax department may pursue tax collection at any point. If the Virginia resident files a fraudulent tax return with the specific intent to evade tax authorities and avoid paying taxes that are justifiably due, then the collection period is unlimited. The tax authorities may pursue a tax assessment at any point if the individual fails to report a tax increase.
Statute of Limitations for Correcting Federal Income Tax
According to the tax code, the state tax department has one year to pursue a Virginia state tax assessment based upon an increase in the taxpayer's federal income tax base.
Statute of Limitations for Erroneous Tax Refund Collection
If the Virginia tax commissioner sent an incorrect tax refund amount based upon departmental mistake, the tax commissioner treats the overpayment as a tax liability, which is due within two years of the refund. The tax authority has five years to collect an overpaid tax refund, which was due to the taxpayer's fraudulent underreporting.
Statute of Limitations for Collections of Penalties and Interest
The Tax Code of Virginia allows the tax department 20 years to collect tax penalties through a judicial tax levy or tax lien. The tax commissioner must pursue collection efforts within 20 years from the tax assessment date. If the taxpayer files bankruptcy in a U.S. federal bankruptcy court, the Virginia tax laws allow a temporary suspension for the statute of limitations tolling periods during the time that the taxpayer's assets are tied up in federal bankruptcy court. The same suspension rules apply if the resident is no longer living in Virginia for a period exceeding six months. This means the tax authorities have additional years tacked on to the 20 years to allow for the "stay" on bankruptcy proceedings (federal bankruptcy laws typically preclude ancillary lawsuits against an insolvent taxpayer). Similarly, the tax authorities have additional time to pursue tax levies if the taxpayer was not within the Commonwealth's taxing jurisdiction.
Statute of Limitations for Estate's Request of Prompt Assessment
If the taxpayer is no longer alive, and the taxpayer's estate requests a written request to the tax commissioner for a tax assessment based on an insufficient tax return amount, then the tax commissioner has 18 months to issue the assessment. The tax commissioner has three years from the original filing date to collect the assessment.
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