Can I get an exception to a Virginia tax credit application deadline if my accountant forgot to file it on time?

Plain-English summary

Virginia's Qualified Equity and Subordinated Debt Investments Tax Credit gives individuals and fiduciaries a credit equal to 50% of a qualifying investment in a qualified business venture -- but because the total statewide credit available each year is capped at $5 million (with pro rata reduction if requests exceed that), the Department requires the credit application (Form EDC) and supporting documentation to be filed by April 1 of the year following the investment. A taxpayer who invested during 2021 asked for an exception to that April 1, 2022 deadline because his accountant had agreed to file the paperwork but simply failed to do so in time.

The Department denied the exception. Because the credit is subject to a hard annual dollar cap, allowing late applications risks pushing the total awarded past that cap for the year -- so the Department applies this same hard-deadline policy uniformly across every capped credit it administers, citing a string of prior rulings going back to 2004. Critically, the deadline applies "without regard to a taxpayer's reliance on a third party to file the application" -- meaning an accountant's mistake doesn't create an exception, exactly as a 2022 ruling on the same point had already established. The Department also flagged a second, independent problem with the taxpayer's return: he'd actually tried to claim the credit as if it were part of a DIFFERENT credit (the refundable Research and Development Expenses Tax Credit), up to the full 50% of his investment -- but the two credits are separate and distinct, and this credit is NOT refundable and is capped at the lesser of the tax actually imposed for the year or $50,000. Since the taxpayer's original return reported a loss (no Virginia tax liability at all), he wouldn't have been able to use any of this credit that year even if his application had been timely.

What this means for you

Anyone applying for a capped Virginia tax credit

Treat the application deadline as an absolute hard stop with zero flexibility, regardless of the reason for a delay -- including relying on an accountant or other third party who drops the ball. The Department applies this policy consistently across every capped credit it administers, not just this one.

Investors relying on an accountant or tax preparer to file a time-sensitive credit application

Don't assume that a professional's error creates grounds for an exception -- it doesn't, per this ruling and its cited precedent. Confirm directly (and ideally in writing) that time-sensitive applications were actually filed by the deadline, rather than simply trusting that they were.

Anyone confusing this credit with the Research and Development Expenses Tax Credit

These are separate, distinct credits with different rules -- this credit is nonrefundable and capped at the lesser of your actual tax liability or $50,000, while the R&D credit has its own separate refundability rules. Claiming one credit's benefit under the wrong credit's name on your return can itself derail your claim, independent of any deadline issue.

Common questions

Q: Can I get an exception to a Virginia capped tax credit's application deadline if my accountant missed it?
A: No -- the Department's policy is that the hard deadline for capped tax credits applies regardless of a taxpayer's reliance on a third party to file the application.

Q: Why does Virginia enforce a hard deadline for this credit rather than accepting late applications?
A: Because the credit is capped at $5 million statewide per year and allocated pro rata among approved applicants if requests exceed that amount -- accepting late applications risks exceeding the cap.

Q: Is the Qualified Equity and Subordinated Debt Investments Tax Credit refundable?
A: No -- it's nonrefundable and limited each year to the lesser of the tax actually imposed on the taxpayer or $50,000, and is separate and distinct from the (refundable) Research and Development Expenses Tax Credit.

Q: What happens if I had no Virginia tax liability the year I made the qualifying investment?
A: You likely couldn't use any of the credit for that year regardless of when you applied, since it's nonrefundable and capped at your actual tax liability.

Citations and references

• Va. Code § 58.1-339.4 (Qualified Equity and Subordinated Debt Investments Tax Credit)
• 23 VAC 10-110-288 (April 1 application deadline)
• 23 VAC 10-110-226 B (credit is nonrefundable; capped at lesser of tax imposed or $50,000)
• 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), P.D. 20-193 (11/24/2020) (hard-deadline policy applied to all capped tax credits)
• P.D. 22-46 (3/15/2022) (deadline applies regardless of reliance on a third party to file)

Subject

Credit: Qualified Equity and Subordinated Debt Investments - Application Filing Deadline Enforcement

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-33

Original ruling text

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

Related Documents

04-201

13-189

15-201

20-26

20-193

22-46