December 13, 2024
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will respond to your letter in which you contest the denial of an application for the ***** and ***** (the “Credit”) submitted by your clients, ***** and ***** (the “Taxpayers”), for the taxable year ended December 2023.
FACTS
The Taxpayers filed an application for the Credit related to an investment made in a qualified business during the 2023 taxable year. The Department denied the application because it was not filed by the April 1, 2024, deadline. The Taxpayers request an exception to the deadline. The Taxpayers explain that they believed the Department’s letter approving of the business’s application as a qualified business and the business’s letter to them confirming their investment’s eligibility for the Credit were sufficient for them to claim the Credit on their return.
DETERMINATION
Virginia Code § 58.1-339.4 provides a credit for individual and fiduciary income tax equal to 50% of a qualified business 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 an application for the Credit (currently Form EDC) and any supporting documentation to the Department no later than April 1 of the year following the investment. This requirement is clearly set forth in the instructions for the application. This requirement was also explained in the Department’s letter that approved the qualified business application submitted by the business in which the Taxpayers invested. In addition, the Department’s records indicate that the Taxpayers timely submitted an application for the Credit for the 2021 taxable year and claimed the Credit on their 2021 Virginia individual income tax return. The fact that the Taxpayers timely filed an application and successfully claimed the Credit in a prior taxable year is evidence they were aware of the deadline. Regardless, being unaware of the deadline does not create an exception to the Taxpayers’ application filing requirements. See Public Document (P.D.) 15-201 (10/19/2015) and P.D. 24-84 (9/13/2024).
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 P.D. 04-201 (11/4/2004), P.D. 13-189 (10/18/2013), P.D. 15-201, P.D. 20-26 (2/27/2020), and P.D. 20-193 (11/24/2020). Accordingly, the Department cannot accept the Taxpayers’ application for the Credit because it was filed after the deadline.
The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public documents cited are available at 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 and Legal Affairs, Tax Adjudication and Resolution Division, at (***) ***** or *****@tax.virginia.gov.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia