December 13, 2024
Re: § 58.1-1821 Appeal: Pass-Through Entity Return of Income
Dear *****:
This will respond to your letter submitted on behalf of ***** (the “Taxpayer”), in which you contest the denial of the Taxpayer’s application for the ***** (the “Credit”) for the 2022 taxable year.
FACTS
The Taxpayer filed an application for the Credit related to its research expenses on October 13, 2023. The Department denied the application because it was not filed by the September 1, 2023 deadline, for the 2022 taxable year. The Company requests an exception to the deadline because the individual responsible for preparing computations for the application died in June 2023 and the Company was unable to complete the application accurately until October.
DETERMINATION
Pursuant to Virginia Code § 58.1-439.12:08, an individual, corporation, or pass-through entity may apply for the Credit. Virginia Code § 58.1-439.12:08 E provides that applications for the Credit “must be received by the Department no later than September 1 of the calendar year following the close of the taxable year in which the expenses were paid or incurred.” See also Research and Development Tax Credit Guidelines, as updated and re-issued as Public Document (P.D.) 20-120 (7/7/2020).
This requirement is also clearly set forth in the Form RDC instructions, in the income tax instructions, and on the Department’s website. 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 tax 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 (10/19/2015), and P.D. 20-26 (2/27/2020). Accordingly, the Department cannot accept an application for the Credit after the deadline. While the Department empathizes with the circumstances you state caused the delay in filing, the denial of the application must be upheld in accordance with established policy.
The Code of Virginia sections 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