I invested in a qualified Virginia business but didn't get the required certification paperwork from the company in time -- can I still get the equity investment tax credit if I attach my documents to my income tax return instead of filing the separate credit application form?

Plain-English summary

An individual made a qualifying investment in a Virginia business during 2022 and sought the Qualified Equity and Subordinated Debt Investments Tax Credit -- 50% of the investment under Va. Code § 58.1-339.4. She said she never received the required qualified-business certification paperwork from the company she invested in, so instead of filing the credit application, Form EDC, she attached the qualifying-business statement to her AMENDED 2022 Virginia income tax return after the Department flagged that the credit schedule (Schedule CR) was missing. She didn't actually submit Form EDC itself until November 9, 2023 -- more than seven months after the April 1, 2023 deadline set by 23 VAC 10-110-288.

Ground 1: an attachment to your tax return isn't the application. Form EDC is a standalone application, separate from an individual's income tax return, that must be filed directly with the Department's Tax Credit Unit by April 1 -- before the normal individual income tax filing deadline of May 1. Supporting documentation (including the qualifying business's certification, the type and amount of investment, and a statement that the investment qualifies, per 23 VAC 10-110-287 E) must accompany that application. Attaching the same documents to an income tax return, even an amended one, is NOT a substitute for filing Form EDC itself.

Ground 2: the deadline doesn't bend for third-party delays either. Businesses that issue qualifying investments have their own separate filing requirements (Form QBA) and must give investors the certification and supporting statement they need for Form EDC. But because this credit is capped at $5 million per year and allocated pro rata when demand exceeds the cap, the Department enforces a hard April 1 deadline for every applicant -- citing the same line of prior rulings applied to other capped credits. That hard deadline applies even when a taxpayer blames a business's failure to provide required paperwork on time, and even when a third party (like a preparer or the investee company) is responsible for the delay.

Result. Because Form EDC wasn't filed by April 1, and the November 2023 submission came more than seven months late regardless of the reason, the Department could not grant the credit.

What this means for you

Anyone claiming the Qualified Equity and Subordinated Debt Investments Tax Credit

File the actual Form EDC directly with the Department's Tax Credit Unit by April 1 of the year after your investment -- separately from your income tax return. Don't wait to receive paperwork from the business you invested in; if it's late, that's on you to chase down before the deadline, not an excuse the Department will accept afterward.

Anyone tempted to attach investment-credit paperwork to their income tax return instead

That doesn't work for this credit. Attaching supporting documents to your return (even an amended return) is not a substitute for filing the standalone Form EDC application with the Tax Credit Unit.

Businesses that issue qualifying investments to outside investors

Your investors depend on you to promptly provide the certification and supporting statement required by 23 VAC 10-110-287 E -- delays on your end will not excuse your investors from the Department's hard April 1 deadline, so get that paperwork out early.

Common questions

Q: I invested in a qualified business but the company was slow to send me the required certification -- does that excuse a late credit application?
A: No. The Department's hard April 1 deadline applies regardless of a taxpayer's reliance on a third party (including the investee business) to provide required paperwork on time.

Q: I attached my qualifying-business statement to my amended income tax return -- doesn't that count as applying for the credit?
A: No. Form EDC is a standalone application that must be filed directly with the Department's Tax Credit Unit; attaching the same documents to an income tax return isn't a substitute.

Q: Is this the same result as other capped Virginia tax credits with missed deadlines?
A: Yes -- this corpus's P.D. 24-84 reaches the identical "no exceptions" result for the same credit, where a different taxpayer filed just 17 days late after confusing the deadline with the income tax filing date; this ruling shows the same hard deadline applies even to a much later filing with a different excuse.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-339.4 -- Qualified Equity and Subordinated Debt Investments Tax Credit; 50% of the investment, capped at $5 million annually with pro rata allocation
• 23 VAC 10-110-288 -- application (Form EDC) due no later than April 1 of the calendar year following the investment
• 23 VAC 10-110-287 E -- required supporting documentation from the qualifying business (certification, investment type/amount, qualifying statement)

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), P.D. 20-26 (2/27/2020), and P.D. 20-193 (11/24/2020) -- all applying the same strict deadline policy to other capped Virginia tax credits; P.D. 22-46 (3/15/2022) and P.D. 23-33 (3/29/2023), confirming the deadline applies regardless of a taxpayer's reliance on a third party to file the application. This ruling is part of the same family as this corpus's already-enriched P.D. 24-84, involving the identical credit and deadline but a different taxpayer, a different tax year, and a different excuse (a 17-days-late filing blamed on deadline confusion, rather than this taxpayer's seven-months-late filing blamed on a third party's paperwork delay).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-83

Original ruling text

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

Related Documents

04-201

13-189

15-201

20-26

20-193

22-46

23-33