Could taxpayers receive Virginia's Qualified Equity and Subordinated Debt Investments Tax Credit when their 2018 applications arrived after April 1, 2019?

Plain-English summary

The taxpayers lost the Qualified Equity and Subordinated Debt Investments Tax Credit because the Department received their applications after the mandatory deadline.

The applications concerned investments made during 2018. They arrived on May 8, 2019, in an envelope without a postmark, but the governing deadline was April 1, 2019. Because the credit was subject to a $5 million annual cap and pro rata allocation, the Department treated April 1 as a hard deadline and could not accept late applications.

The taxpayers also could not resubmit the 2018 investments for the 2019 credit pool. That would defeat the deadline and potentially reduce the pro rata credit available to taxpayers who timely applied for the later year. The statute's 15-year carryforward applied only after a taxpayer timely applied and received the credit; it did not preserve an untimely application.

What this means for you

For this capped credit, submitting Form EDC and supporting documents by April 1 of the following year was a condition of eligibility, not a flexible filing preference. A missed deadline could not be cured by shifting the same investment to the next year's pool.

Common questions

What was the deadline for the 2018 investments? April 1, 2019.

When did the Department receive the applications? May 8, 2019.

Could the applications be counted in the 2019 pool instead? No.

What did the 15-year carryforward protect? A credit received after a timely application, not a late application.

Citations and references

• Va. Code § 58.1-339.4 — 50% credit, annual cap and allocation, and carryforward provisions described in the ruling.
• 23 VAC 10-110-288 — April 1 application and supporting-document deadline.
• P.D. 04-201, 13-189, and 15-201, cited for the Department's hard-deadline policy for capped credits.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-26

Original ruling text

February 27, 2020

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you contest the denial of two applications for the Qualified Equity and Subordinated Debt Investments Tax Credit (the “Credit”) submitted for * (the “Taxpayers”) for the taxable year ended December 31, 2018.

FACTS

The Taxpayers filed applications for the Credit related to investments they made in a qualified business during the 2018 taxable year. The applications were received by the Department on May 8, 2019, and the envelope did not bear a postmark. The Department denied the applications because they were not filed by the April 1, 2019, deadline for the 2018 taxable year. The Taxpayers request that the Department reconsider its denial of the Credit applications and allow them to submit applications for the Credit for the 2019 taxable year based upon the 2018 investments.

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), and P.D. 15-201 (10/19/2015). Accordingly, the Department cannot accept an application for the Credit after the deadline.

The Taxpayers also request 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 Taxpayers submitted their applications for the Credit after the April 1, 2019, deadline passed. Because the Taxpayers failed to submit their applications in a timely fashion, their 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/2078C

Related Documents

18-157

04-201

13-189

15-201