The Department said my company's R&D tax credit application was missing information and needed more time to fix it, but I never got the notice -- can I still get the credit if I submit the missing information after the deadline?

Plain-English summary

A corporation applied for the Major Research and Development Expenses Tax Credit for the 2021 taxable year by filing Form MRD, but left out the names and Social Security numbers of the employees for whom it was claiming qualified wage expenses on the required Schedule RD-WAGE. The Department tried to reach the company by letter, fax, and phone to request the missing information; when nothing arrived by the published completion deadline of November 15, 2022, the Department denied the application. The taxpayer eventually provided the missing information in February 2023 -- three months late -- and was denied again. It appealed, arguing it never actually received the Department's notice and had been busy with year-end filings.

Two deadlines, not one. Applications for this credit are due to the Department by September 1 of the year after the credit year. But that's not the end of it: the Department reviews every application for completeness and, by November 1, notifies applicants of anything missing. Any missing information (like the employee data required by the enclosure checklist -- full names, Social Security numbers, and wages allocated to Virginia R&D work) must be provided by November 15 or the application can't be processed at all. The Form MRD instructions and checklist make this explicit: "[t]he Department will be unable to process the application until all of the required enclosures have been submitted," and wages reported without Social Security numbers may not even qualify.

Not receiving the Department's notice doesn't matter. The Department grants two and a half months (September 1 to November 15) to perfect an incomplete application and will TRY to notify a taxpayer of what's missing -- but a taxpayer claiming the credit is responsible for completing its own application by November 15 regardless of whether it actually received that notice. Being busy with unrelated year-end tax work isn't an exception either.

Why no exceptions: the credit is capped. Like other capped Virginia tax credits, this one is subject to an annual dollar limit. Allowing incomplete or late-perfected applications to be approved anyway could push total approved credits above the statutory cap for the year -- so the Department applies the same hard-deadline policy here that it applies to every other capped credit it administers.

Result. Because the required Schedule RD-WAGE information wasn't provided until three months after the November 15 completion deadline, the Department could not accept the application, and the denial was upheld.

What this means for you

Anyone applying for the Major Research and Development Expenses Tax Credit

File Form MRD and Schedule RD-WAGE complete the FIRST time, by September 1 -- including every claimed employee's full name, Social Security number, and Virginia-allocated R&D wages. If the Department flags something missing, you have only until November 15 to fix it, and you're responsible for meeting that deadline whether or not you actually receive the Department's notice.

Businesses with a busy year-end tax season

Don't assume being occupied with other year-end filings will excuse a missed completion deadline for a capped tax credit -- the Department has shown it will not make an exception for competing workload, just as it won't for a missed notice.

Anyone claiming any capped Virginia tax credit with a multi-step application process

Check whether your credit's application has a SEPARATE completion/perfection deadline beyond the initial filing deadline (as this credit does, September 1 filing plus November 15 to fix any gaps) -- missing either one can be fatal, and the Department treats both as hard deadlines for capped credits.

Common questions

Q: I never received the Department's letter, fax, or phone call about my incomplete R&D credit application -- does that excuse a late fix?
A: No. A taxpayer claiming this credit is responsible for completing the application by the November 15 deadline regardless of whether the Department's notice was actually received.

Q: Why is there a separate November 15 deadline in addition to the September 1 filing deadline?
A: The Department reviews applications for completeness and notifies taxpayers of errors by November 1; taxpayers then have until November 15 to supply anything missing. Both deadlines are treated as hard, no-exceptions cutoffs because the credit is subject to an annual statewide cap.

Q: Does this same hard-deadline policy apply to other Virginia tax credits?
A: Yes -- the Department applies the same no-exceptions deadline policy to every capped tax credit it administers, not just this one.

Citations and references

Statutes and guidance:

• Va. Code § 58.1-439.12:11 -- Major Research and Development Expenses Tax Credit
• Major Research and Development Expenses Tax Credit Guidelines, updated and reissued as P.D. 20-126 (7/14/2020) -- September 1 application deadline, November 1 completeness notice, November 15 completion deadline

Prior rulings the Department relied on (described here, not linked): P.D. 04-201 (11/4/2004), P.D. 13-189 (10/18/2013), P.D. 15-201 (10/19/2015), and P.D. 20-193 (11/24/2020) -- establishing the same hard-deadline policy for other capped Virginia tax credits. This ruling is part of the same capped-credit hard-deadline family as this corpus's P.D. 24-84/24-83/24-82 (the Qualified Equity and Subordinated Debt Investments Tax Credit), but applies the rule to a DIFFERENT deadline in the process -- the application-completion deadline, not the initial filing deadline -- and to a distinct excuse (claimed non-receipt of the Department's own notice, rather than confusion about the date).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-73

Original ruling text

August 5, 2024

Re: § 58.1-1821 Application: Corporate Income Tax

Dear * :

This will reply to your letter submitted on behalf of * (the “Taxpayer”), in which you appeal the denial of its application for the Major Research and Development Expenses Tax Credit (the “Credit”) for the 2021 taxable year.

FACTS

The Taxpayer filed a Form MRD, Application for Major Research and Development Expenses Tax Credit, that did not include the names and social security numbers of the employees for which the Taxpayer claimed wage expenses. The Department attempted to contact the Taxpayer by letter, facsimile, and phone. When the information was not provided by the published deadline, November 15, 2022, the application was denied.

The Taxpayer provided the requested information in February 2023. The Department again denied the application because the requested information was not provided within the time permitted. The Taxpayer filed an application for correction, contending that it did not receive notification of the missing information.

DETERMINATION

Pursuant to Virginia Code § 58.1-439.12:11, an individual, corporation, or pass-through entity may apply for the Credit. 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 in accordance with published guidelines. The Major Research and Development Expenses Tax Credit Guidelines, as updated and re-issued as Public Document (P.D.) 20-126 (7/14/2020), provide:

An eligible taxpayer must submit an Application for the Major Research and Development Expenses Tax Credit, Form MRD, and any supporting documentation to the Department in the year following the credit year. Effective beginning with applications due in 2020, the application deadline is September 1. The Department will review all applications for completeness and notify taxpayers of any errors by November 1. If any additional information is required, it must be provided to the Department no later than November 15 to be considered for the credit. All eligible taxpayers will then be notified as to the amount of credits that they may claim.

The Form MRD instructions provide further guidance to taxpayers. For taxpayers claiming the Credit on the basis of qualified wages, a completed Schedule RD-WAGE (qualified wages) must be included. The Form MRD enclosure checklist also states what needs to be provided with the Schedule RD-WAGE, specifically employees’ full names, social security numbers, and salaries allocated to Virginia qualified research and development activities. The checklist specifically states that “[t]he Department will be unable to process the application until all of the required enclosures have been submitted.” In addition, both the checklist and the Schedule RD-WAGE instructions clearly state that wages reported without social security numbers may not qualify for the Credit.

The Taxpayer contends that it never received the letter nor the phone calls. It requests that the Credit be issued because the Department failed to provide notification of the errors. Further, it asserts that it was delayed in providing the information because its tax department was busy as a result of year-end filing requirements.

The Department grants two and a half months to perfect a Credit application and will notify taxpayers within that time period if additional information is required. Regardless of whether the Department’s request is received, a taxpayer claiming the Credit is still responsible for completing its application before November 15. The Taxpayer in this case failed to satisfy the requirements of the application process.

Further, because the Credit is subject to an annual cap, the Department must have a deadline for tax credit applications. Adopting a policy of approving incomplete applications for the Credit could result in the amount of tax credit exceeding the tax credit cap for a particular year. The 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. 20-193 (11/24/2020). Accordingly, the Department cannot accept an application for the Credit when all the required documentation was not provided within the prescribed deadline.

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, Appeals and Rulings, at or **.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4549.B

Related Documents

04-201

13-189

15-201

20-126

20-193