I invested in a qualified business and my Form EDC tax credit application was filed after the April 1 deadline because the company said it would handle the paperwork -- can Virginia make an exception?

Plain-English summary

This ruling is a clear taxpayer loss that illustrates a firm rule: when a Virginia tax credit is capped at a set dollar amount per year, the Department treats its application deadline as absolute, with essentially no excuses accepted.

Virginia's Qualified Equity and Subordinated Debt Investments Tax Credit gives individual and fiduciary taxpayers a credit equal to 50% of a qualifying investment made in an approved small business during the year. Because the total credits available statewide are capped at $5 million per calendar year (and allocated pro rata if requests exceed that cap), the Department's regulation sets a hard application deadline: Form EDC and supporting documentation must be filed no later than April 1 of the year following the investment.

A taxpayer invested in a qualified business during 2020 but didn't file the Form EDC application until after the April 1, 2021 deadline. The taxpayer explained that the invested business's own CEO had said he would take care of filing the application. The Department denied the application as untimely and, on appeal, upheld that denial. Its reasoning: because the credit is subject to an annual dollar cap shared among all applicants, allowing late applications would risk pushing the total credits awarded for that year over the statutory cap -- so the Department applies the same hard deadline, without individualized exceptions, to every capped tax credit it administers, citing a consistent line of prior rulings enforcing this same policy across different capped credits over nearly two decades.

What this means for you

Anyone applying for a Virginia tax credit that has an annual dollar cap

Treat the application deadline as absolute. Unlike some other tax situations where the Department can excuse a late filing for reasonable cause, capped credits get no such flexibility, because granting an exception to one taxpayer could push the total awarded past the statutory cap and affect everyone else who applied on time.

Investors relying on someone else (a business partner, the invested company, an advisor) to file paperwork on your behalf

Confirm the filing yourself, or at least confirm it was actually submitted before the deadline. A third party's promise to handle an application isn't a basis for the Department to accept a late filing, even where you relied on that promise in good faith.

Accountants and tax professionals

This ruling is useful shorthand: the Department has applied a strict "no late applications" policy across every capped credit it administers (citing five separate prior rulings on different credits from 2004 through 2020). If a client asks about excusing a late capped-credit application, this is settled, unfavorable territory -- reasonable-cause arguments that might work for a penalty won't work here.

Common questions

Q: Can Virginia make an exception to a tax credit filing deadline if I have a good reason for missing it?
A: For capped tax credits (where the total dollars available each year is limited by statute), no. The Department has consistently refused to grant exceptions, because a late acceptance could push the year's total credits over the statutory cap.

Q: What if someone else -- like the company I invested in -- told me they would file the application for me?
A: That isn't grounds for the Department to accept a late application. The filing obligation and its consequences fall on the taxpayer claiming the credit.

Q: Does this apply to all Virginia tax credits, or just this one?
A: The ruling specifically addresses the Qualified Equity and Subordinated Debt Investments Tax Credit, but the Department describes this hard-deadline policy as applying to all capped tax credits it administers.

Citations and references

• Va. Code § 58.1-339.4 (Qualified Equity and Subordinated Debt Investments Tax Credit; credit equals 50% of a qualifying investment; $5 million annual cap allocated pro rata)
• Title 23 VAC 10-110-288 (Form EDC and supporting documentation must be filed no later than April 1 of the year following the investment)
• 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), P.D. 20-193 (11/24/2020) (consistent Department policy enforcing hard deadlines for all capped tax credits)

Subject

Credit : Qualified Equity and Subordinated Debt Investments - Form EDC Deadline

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-46

Original ruling text

March 15, 2022

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 for your client, * (the “Taxpayer”), for the taxable year ended December 31, 2020.

FACTS

The Taxpayer filed an application for the Credit related to an investment made in a qualified business during the 2020 taxable year. The Department denied the application because it was not filed by the April 1, 2021, deadline for the 2020 taxable year. The Taxpayer contends that an exception to the deadline should be made because the chief executive officer of the qualified business told the Taxpayer that they would handle the application.

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 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). Accordingly, the Department cannot accept the Taxpayer’s application for the Credit because it was filed after the deadline.

The Code of Virginia sections, regulation, and public documents cited are available online at www.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 ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3933.C

Related Documents

04-201

13-189

15-201

20-26

20-193