March 29, 2023
Re: § 58.1-1821 Appeal: Individual Income Tax
Dear *****:
This will respond to your letter in which you contest the denial of an application for the Qualified Equity and Subordinated Debt Investments Tax Credit (the “Credit”) submitted by ***** (the “Taxpayer”), for the taxable year ended December 31, 2021.
FACTS
The Taxpayer filed an application for the Credit related to an investment made in a qualified business during the 2021 taxable year. The Department denied the application because it was not filed by the April 1, 2022, deadline for the 2021 taxable year. The Taxpayer requests an exception to the deadline because his accountant had agreed to file the form but failed to do so by the deadline.
DETERMINATION
Virginia Code § 58.1-339.4 provides a credit for individual and fiduciary income tax equal to 50% of a qualified equity and subordinated debt investment made during the taxable year in a qualified business venture. Under the statute, when the aggregate amount of requests for the Credit for a calendar year exceeds $5 million, the Department allocates the available Credit pro rata among the approved applicants.
Title 23 of the Virginia Administrative Code (VAC) 10-110-288 provides that, “[f]or any taxable year that ends after January 1, and on or before December 31 of a calendar year, eligible taxpayers must submit an application and supporting documentation requesting the tax credit no later than April 1 of the subsequent calendar year.” Therefore, in order to receive the Credit, an eligible taxpayer must submit Form EDC and any supporting documentation to the Department no later than April 1 of the year following the investment. This requirement is also clearly set forth in the instructions for the application.
Because the Credit is subject to an annual cap, the Department must have a deadline for tax credit applications. Adopting a policy of approving late applications for the Credit could result in the amount of tax credit exceeding the tax credit cap for a particular year. The Department’s policy of establishing a hard deadline for capped credits has been applied to all capped tax credits that are administered by the Department. See Public Document (P.D.) 04-201 (11/4/2004), P.D. 13-189 (10/18/2013), P.D. 15-201 (10/19/2015), P.D. 20-26 (2/27/2020) and P.D. 20-193 (11/24/2020). This hard deadline applies without regard to a taxpayer’s reliance on a third party to file the application. See P.D. 22-46 (3/15/2022). Accordingly, the Department cannot accept the Taxpayer’s application for the Credit because it was filed after the deadline.
In addition, a review of the Taxpayer’s original 2021 Virginia individual income tax return indicates that he attempted to claim the Credit as a refundable Research and Development Expenses Tax Credit (the “R&D Credit”) up to the full 50% of his investment. The Credit, however, is separate and distinct from the R&D Credit, is not refundable, and in any taxable year may not exceed the lesser of the tax imposed for the taxable year or $50,000. See Title 23 VAC 10-110-226 B. The Taxpayer’s original return reported a loss for Virginia income tax purposes and thus no Virginia income tax liability. Provided that the liability was accurately reported, the Taxpayer would not have been able to utilize any of the Credit on his 2021 return.
The Code of Virginia sections, regulations, and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/4211.X