September 13, 2024
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, 2022.
FACTS
The Taxpayer filed an application for the Credit related to an investment made in a qualified business during the 2022 taxable year. The Department denied the application because it was not filed by the April 1, 2023, deadline for the 2022 taxable year. As such, the refund she claimed on her 2022 Virginia income tax return was reduced. The Taxpayer requests an exception to the deadline because she did not receive a copy of the qualified business certification form from the company in which she invested.
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 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. Supporting documentation includes a statement from a qualifying business containing: 1) a copy of the qualified business certificate issued to the business by the Department; 2) the type of investment at issue and the amount; and 3) a statement that the investment at issue meets the definition of a qualified investment. See Title 23 VAC 10-110-287 E. These requirements are also clearly set forth in the instructions for Form EDC.
Form EDC is an application separate from an individual’s income tax return. It is required to be filed by April 1, before the normal individual income tax filing deadline of May 1, and must be submitted directly to the Department’s Tax Credit Unit as set forth in the Form EDC filing instructions. Attachments included when filing an individual income tax return are not permitted as substitutes for Form EDC.
Businesses also have their own filing requirements that must be satisfied before investors can claim the Credit. The instructions to one of these required filings, Form QBA, Application for Designation as a Qualified Business for the Qualified Equity and Subordinated Debt Investments Tax Credit, clearly set forth what information the business must provide to investors, including a copy of the qualified business certification and a statement on the business’ letterhead containing the information required by Title 23 VAC 10-110-287 and the Form EDC instructions.
In this case, the Taxpayer received a letter from the Department indicating that a Schedule CR, the credit computation schedule, was not filed with her 2022 Virginia individual income tax return. She attached the required statement from the qualifying business to her amended 2022 return in the belief that such action would satisfy the application requirement. The Taxpayer subsequently submitted Form EDC on November 9, 2023. That application, however, was denied because it was received after the April 1 deadline.
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) and P.D. 23-33 (3/29/2023). Similarly, there is no exception to the filing deadline if a business fails to provide a taxpayer with information required in order to submit a completed Form EDC. Accordingly, the Department cannot accept the Taxpayer’s application for the Credit because it was filed after the deadline.
The Code of Virginia sections and regulations 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, Appeals and Rulings, at (804) *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4845.B