Do your 2017 investments qualify for the Virginia Qualified Equity and Subordinated Debt Credit?

Posted on 01.10.18

Do your 2017 investments qualify for the Virginia Qualified Equity and Subordinated Debt Credit?

By Jennifer F. Flinchum, CPA, CFP®, Partner | Family, Executive & Entrepreneur Advisory Services

Now is the time to gather information regarding investments that you made during 2017 which will qualify for the Virginia Qualified Equity and Subordinated Debt Credit. If you made such an investment, Form EDC must be filed by April 1, 2018. Unfortunately, there are no extensions. If you made an investment that will qualify – the business would likely have told you about this credit or even provided some preliminary paperwork. 

Once Form EDC is filed, Virginia will compile all such requests and issue the final credit determination by June 30, 2018.

Following are a few facts from the Virginia Department of Taxation website regarding the credit.

Qualified Business

Effective January 1, 2009 a qualified business means a business which (i) has annual gross revenues of no more than $3 million in its most recent fiscal year, (ii) has its principal office or facility in the Commonwealth, (iii) is engaged in business primarily in or does substantially all of its production in the Commonwealth, (iv) has not obtained during its existence more than $3 million in aggregate gross cash proceeds from the issuance of its equity or debt investments (not including commercial loans from chartered banking or savings and loan institutions), and (v) is primarily engaged, or is primarily organized to engage, in the fields of advanced computing, advanced materials, advanced manufacturing, agricultural technologies, biotechnology, electronic device technology, energy, environmental technology, information technology, medical device technology, nanotechnology, or any similar technology-related field determined by regulation by the Department of Taxation to fall under the purview of this section.

In order to be a “Qualified Business” for the 2017 credit,  the business must have filed Form QBA by December 31, 2017.  Even if a business has qualified in the past, they must reapply each year.

How Much is the Credit?

The credit is equal to 50% of the qualified business investments made during the taxable year. If total annual requests for the credit exceed $5 million for tax year 2017, the Department of Taxation will prorate the credit for each taxpayer.

The credit a taxpayer may claim per taxable year may not exceed the credit authorized by the Department of Taxation, $50,000, or the income tax liability on that year's return, whichever is less. The credit is nonrefundable. Unused credits may be carried forward up to 15 years.

Qualified Investment

Qualified investment means a cash investment in a qualified business in the form of equity or subordinated debt; however, an investment shall not be qualified if the taxpayer who holds such investment, or any of such taxpayer's family members, or any entity affiliated with such taxpayer, receives or has received compensation from the qualified business in exchange for services provided to such business as an employee, officer, director, manager, independent contractor or otherwise in connection with or within one year before or after the date of such investment. For the purposes hereof, reimbursement of reasonable expenses incurred shall not be deemed to be compensation.

Equity

Equity means common stock or preferred stock, regardless of class or series, of a corporation; a partnership interest in a limited partnership; or a membership interest in a limited liability company, which is not required or subject to an option on the part of the taxpayer to be redeemed by the issuer within 3 years from the date of issuance. No equity investment will qualify for this credit if it is required to be redeemed or subject to an option to be redeemed by the issuer within 5 years of the date of issuance.

Subordinated Debt

Subordinated debt means indebtedness of a corporation, general or limited partnership, or limited liability company that (i) by its terms required no repayment of principal for the first 3 years after issuance; (ii) is not guaranteed by any other person or secured by any assets of the issuer or any other person; and (iii) is subordinated to all indebtedness and obligations of the issuer to national or state-chartered banking or savings and loan institutions.

Contact your Keiter representative if you made any such qualifying investments during 2017. Questions on the credit? Email or call: 804.747.0000. We are here to help. 

Additional Tax Planning Resources:

 

Source:

Virginia Department of Taxation

Posted by: Jennifer F. Flinchum, CPA, CFP®

Jennifer partners with her corporate and individual clients to identify tax planning and credit opportunities while managing liability and risk. She applies her significant experience in tax compliance and strategic consulting for both privately held businesses and their owners. Her expertise also includes tax accruals, mergers and acquisitions, multi-state tax issues, audit controversy and executive compensation.is the lead partner of Keiter’s Family, Entrepreneur, and Executive Advisory Services Team and a Manufacturing, Retail and Distribution industry team leader.