I missed the April 1 deadline to apply for Virginia's Qualified Equity and Subordinated Debt Investments Tax Credit -- can I still get the credit, or at least apply it to next year's investment pool?

Plain-English summary

An individual made a qualifying equity investment in 2019 in a Virginia business eligible for the state's Qualified Equity and Subordinated Debt Investments Tax Credit -- a credit worth 50% of the investment. She filed her application (Form EDC) on May 12, 2020, six weeks after the statutory April 1, 2020 deadline for 2019-taxable-year investments. The Department denied the application solely because it was late. She appealed, explaining the delay resulted from her mistaken belief that the business she invested in would handle the filing, compounded by pandemic-related restrictions, and asked either for the credit to be granted anyway or, alternatively, to have her 2019 investment counted toward the NEXT year's (2021) credit pool.

Why the deadline is strictly enforced. This credit is capped at $5 million total per calendar year; when total approved requests exceed that cap, the Department allocates the available credit pro rata among approved applicants. Because of that cap-and-allocation mechanism, the Department must have a firm, predictable cutoff for applications -- otherwise it couldn't calculate the correct pro rata shares, and the total credits granted could exceed the statutory cap. The regulation (23 VAC 10-110-288) sets that cutoff at April 1 of the year following the investment, and the Department has applied the same hard-deadline approach to every OTHER capped tax credit it administers (citing four prior rulings going back to 2004), not just this one -- so the taxpayer's late filing could not be excused regardless of the reason for the delay.

Why the "count it toward next year" fallback also failed. The Tax Commissioner explained that letting a late applicant effectively roll a missed year's investment into a LATER year's application pool would functionally erase the deadline altogether, and could unfairly reduce the pro rata share available to investors who DID timely file for that later year. While the statute does allow a taxpayer who properly and timely claimed the credit to carry unused credit forward for up to 15 years, that carryforward provision only helps taxpayers who filed on time in the first place -- it doesn't rescue a late-filed application by letting it "convert" into a different year's timely application.

Bottom line. Because the application was filed after the deadline, the credit request was denied outright, with no relief available under either the direct-approval or the rollover-to-a-later-year theory.

What this means for you

Investors in qualified Virginia businesses claiming this credit

Treat April 1 of the year AFTER your investment as an absolute, non-extendable deadline -- don't rely on the investee business to file on your behalf, and don't assume a reasonable excuse (a mistaken belief about who would file, a pandemic disruption, or similar) will save a late application, because the Department has consistently held this deadline firm across every capped credit it administers.

Investors who miss the deadline

Don't expect to salvage a missed year's investment by applying it to a LATER year's credit pool -- the Department has expressly rejected that approach, since it would undercut the deadline and could shortchange other investors who filed on time for that later year.

Businesses and their investors coordinating on credit applications

Confirm explicitly WHO is responsible for filing the Form EDC application and by when -- this dispute arose specifically because the investor assumed the business would file it, and that assumption cost her the entire credit with no fallback available.

Common questions

Q: Is Virginia's Qualified Equity and Subordinated Debt Investments Tax Credit deadline flexible for good cause?
A: No. The Department treats the April 1 (of the year following the investment) deadline as a hard cutoff for every capped credit it administers, regardless of the taxpayer's reason for filing late.

Q: Why is the deadline enforced so strictly for this particular credit?
A: The credit is capped at $5 million per year and allocated pro rata when demand exceeds that cap -- a firm deadline is necessary for the Department to calculate correct pro rata shares and stay within the statutory cap.

Q: Can a late investment be applied to a later year's credit application instead?
A: No -- the Department rejected that approach because it would effectively erase the deadline and could reduce the pro rata share of investors who timely filed for that later year.

Q: Does the 15-year credit carryforward help with a late-filed application?
A: No -- the carryforward only applies to credit that was properly and timely claimed in the first place; it doesn't rescue an application that missed the deadline.

Subject

Credit : Qualified Equity and Subordinated Debt Credit - Late Filed Application

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-50

Original ruling text

April 6, 2021

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 she made in a qualified business during the 2019 taxable year. The application was dated May 12, 2020 and was received that day 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 the erroneous belief that the qualified business would file the Credit application and because of restrictions caused by the pandemic. She requests that the Department reconsider its denial of the Credit application or, in the alternative, allow her 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 her application for the Credit after the April 1, 2019, deadline passed. Because the Taxpayer failed to submit her application in a timely fashion, her 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/3519.B

Related Documents

04-201

13-189

15-201

20-26