State Tax Ruling

Plain-English summary

A taxpayer made a qualifying investment in a Virginia small business during 2019 and applied for the Qualified Equity and Subordinated Debt Investments Tax Credit under Va. Code § 58.1-339.4 — a credit worth 50% of the investment. The application, however, was dated August 13, 2020 and received by the Department on August 17, 2020, months after the statutory deadline. The Department denied it. The taxpayer appealed under Va. Code § 58.1-1821, arguing the application was late because of pandemic-related restrictions, and asked the Commissioner either to reconsider the denial outright or, failing that, to let the 2019 investment be counted against the 2021 credit pool instead.

The Tax Commissioner denied the appeal. Under 23 VAC 10-110-288, an eligible taxpayer must submit the application (Form EDC) and supporting documentation no later than April 1 of the year following the investment — for a 2019 investment, that meant April 1, 2020. The ruling explains this deadline is not a formality: because the Credit is capped at $5 million per calendar year and allocated pro rata among approved applicants when demand exceeds the cap, the Department needs a firm cutoff to know how many applications are competing for the pool. Letting late applications in — even for a sympathetic reason like the pandemic — could push the year's approved credits over the cap.

The Commissioner also rejected the fallback request to shift the claim into the 2021 pool. The ruling notes that while § 58.1-339.4 lets taxpayers who timely filed and were approved carry the credit forward for up to 15 years, that carryforward only applies to credits already granted — it does not let an untimely application be resubmitted in a later year. Allowing that would effectively erase the deadline for everyone and could crowd out taxpayers who filed on time in the later year, shrinking their pro-rata share.

The Department pointed to several earlier rulings applying the same hard-deadline policy across its capped credit programs (P.D. 04-201, P.D. 13-189, P.D. 15-201, and P.D. 20-26), showing this is a consistent, program-wide practice and not something specific to the equity/debt credit.

What this means for you

Investors and businesses claiming this credit

Mark the April 1 deadline (following the year of your investment) as an absolute cutoff — Form EDC and all supporting documentation must be received by the Department by that date. This ruling shows that even a documented, sympathetic cause for delay (the 2020 pandemic disruptions) does not excuse a late filing. Build in a buffer well before April 1 rather than filing near the deadline.

Accountants and tax professionals

Advise clients that this credit's cap-and-pro-rata structure is the Department's stated reason for treating the deadline as absolute, with no case-by-case waiver. Also flag that a missed year cannot be "made up" the following year — only credits that were timely applied for and approved carry forward (up to 15 years); a late application itself has no fallback path.

Taxpayers considering an appeal of a similar denial

This ruling, plus the four prior rulings it cites (P.D. 04-201, P.D. 13-189, P.D. 15-201, P.D. 20-26), signals that the Department treats hard filing deadlines the same way across its various capped tax credit programs. An appeal based on external hardship or a request to defer into a future year's pool is unlikely to succeed absent a change in the underlying regulation.

Common questions

Q: Can a late application for this credit ever be excused, such as for a natural disaster or pandemic?
A: Not based on this ruling. The taxpayer argued pandemic-related restrictions caused the delay, and the Commissioner still denied the appeal, reasoning that a hard deadline is necessary because the credit is capped and allocated pro rata.

Q: If an application misses the deadline, can it be applied to the next year's investment pool instead?
A: No. The Commissioner held that only credits from timely, approved applications can be carried forward (up to 15 years); an untimely application cannot simply be resubmitted or credited against a later year's pool.

Q: What is the actual deadline for this credit?
A: Under 23 VAC 10-110-288, Form EDC and supporting documentation must be submitted no later than April 1 of the calendar year following the taxable year in which the investment was made.

Q: Why is the Department so strict about this particular deadline?
A: Because the Qualified Equity and Subordinated Debt Investments Tax Credit is capped at $5 million per year and split pro rata among approved applicants when requests exceed the cap, the Department says it must know the full pool of timely applicants before allocating the credit — accepting late filings could push total approved credits over the cap.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-1821 (taxpayer's application for correction/appeal of an assessment or denial)
• Va. Code § 58.1-339.4 (Qualified Equity and Subordinated Debt Investments Tax Credit; 50% credit, $5 million annual cap, pro rata allocation, 15-year carryforward for approved credits)
• 23 VAC 10-110-288 (April 1 filing deadline for Credit applications)

Related Department rulings cited: 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) — all applying the same hard-deadline policy to other capped Virginia tax credits.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-193

Original ruling text

November 24, 2020

Re: § 58.1-1821 Application: 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 for * (the “Taxpayer”) for the taxable year ended December 31, 2019.

FACTS

The Taxpayer filed an application for the Credit related to an investment it made in a qualified business during the 2019 taxable year. The application was dated August 13, 2020 and was received on August 17, 2020 by the Department. The Department denied the application because it was not filed by the April 1, 2020, deadline for the 2019 taxable year. The Taxpayer contends that the application was filed late because of restrictions caused by the pandemic. It requests that the Department reconsider its denial of the Credit application or, in the alternative, allow it to defer the Credit for the 2019 investment as part of the 2021 distribution.

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 tax 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) and P.D. 20-26 (2/27/2020). Accordingly, the Department cannot accept an application for the Credit after the deadline.

The Taxpayer also requests that the Department grant Credit in the subsequent year’s pool. As indicated above, submitting a late application will disqualify an investor’s eligibility for the Credit for the investment covered by such application. Allowing taxpayers who file late applications in one year to file the same applications the following year would effectively negate the deadline. It could also penalize applicants who timely file applications in the following year. If enough investments have been made for the following year to reach the cap, allowing unclaimed investments from prior years would reduce the applicants’ available pro rata Credit. While Virginia Code § 58.1-339.4 allows taxpayers who have timely filed an application and received the Credit to carry the benefits forward up to 15 years, it does not allow for any such carry forward of untimely applications for the Credit.

In this case, the Taxpayer submitted its application for the Credit after the April 1, 2020, deadline passed. Because the Taxpayer failed to submit its application in a timely fashion, its request cannot be granted.

The Code of Virginia sections, regulation, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3518.B

Related Documents

18-157

04-201

13-189

15-201

20-26