The person who prepared our Research and Development tax credit calculations died before the deadline, delaying our application by six weeks -- can Virginia excuse the late filing?

Plain-English summary

A company (the ruling's own caption identifies the taxpayer as a pass-through entity, though the appeal was filed and tracked under corporation income tax) applied for Virginia's Research and Development Tax Credit related to research expenses paid or incurred during the 2022 taxable year. Virginia Code § 58.1-439.12:08 lets an individual, corporation, or pass-through entity apply for this credit, but § 58.1-439.12:08 E requires the application to be received by the Department no later than September 1 of the calendar year following the year the expenses were paid or incurred — here, September 1, 2023. The company didn't file until October 13, 2023, about six weeks late.

The reason for the delay. The company explained that the individual responsible for preparing the technical computations supporting the credit application died in June 2023, and it wasn't able to complete the application accurately until October.

Why the Department denied it anyway. The Department acknowledged it "empathizes with the circumstances," but the deadline requirement is clearly stated in the Form RDC instructions, the income tax return instructions, and on the Department's own website. Like Virginia's other capped credits, the R&D credit is subject to an annual cap, so the Department must maintain a hard deadline — approving late applications risks pushing the total credit granted for a year past the statutory cap. The Department applies this same policy across every capped tax credit it administers (citing P.D. 04-201, P.D. 13-189, P.D. 15-201, and P.D. 20-26) — the identical hard-deadline doctrine seen in this corpus for the qualified equity and subordinated debt investment credit (P.D. 24-134, 24-135, 24-138). Because the underlying policy applies "regardless of" how sympathetic the reason for delay is, the denial had to stand even though the Department expressed sympathy for the taxpayer's situation.

What this means for you

Businesses claiming Virginia's Research and Development Tax Credit

File Form RDC well before the September 1 deadline for the prior year's research expenses. Build redundancy into who prepares your supporting computations — a single point of failure (one person who dies, becomes unavailable, or leaves the company) is not grounds for an extension, no matter how sympathetic the circumstance.

Anyone facing a Virginia capped-credit deadline due to unexpected hardship

The Department has shown it will express empathy for a taxpayer's circumstances while still enforcing the deadline. Don't count on hardship, even a death or serious illness affecting the preparer, as a basis for relief — plan for continuity of the person or firm handling your credit application well in advance of the deadline.

Accountants and tax professionals

Cross-train or maintain backup documentation for any capped-credit computation you handle for clients, so a single preparer's unavailability doesn't jeopardize a hard filing deadline.

Common questions

Q: Does Virginia make exceptions to capped-credit deadlines for hardship, like the death of the person preparing the application?
A: No. The Department has held that even this kind of sympathetic circumstance doesn't excuse a late application — the hard deadline for capped credits applies regardless of the reason for the delay.

Q: What is the deadline for Virginia's Research and Development Tax Credit?
A: Form RDC and supporting documentation must be received by the Department no later than September 1 of the calendar year following the year the research expenses were paid or incurred.

Q: Is this the same deadline doctrine that applies to other Virginia tax credits?
A: Yes — the Department applies the same hard-deadline policy to every capped tax credit it administers, including the qualified equity and subordinated debt investment credit addressed in companion rulings P.D. 24-134, 24-135, and 24-138.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-439.12:08 — Research and Development Tax Credit; application (Form RDC) due no later than September 1 of the year following the taxable year the research expenses were paid or incurred

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-137

Original ruling text

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

Related Documents

04-201

13-189

15-201

20-26

20-120