While many people know that Virginia has a Qualified Equity and Subordinated Debt Investment Tax Credit program that offers investors a state income tax credit of up to 50% of their investment in a qualified entity, most people are not aware that the credit applies only to companies in certain targeted industries. Our Emerging Technology Team recently assisted an early stage company whose application for designation as a qualified business had been denied by the tax authorities. The Company had raised $470,000 of new equity capital in 2012 and was anxious to offer this tax credit to each new investor. We obtained additional information about the Company’s technology and determined that its technology qualified as “Advanced Manufacturing” — one of the designated industry groups. We drafted a response to the denial letter, which outlined in clear detail the Company’s technology and its business plan and how the Company clearly fit within the targeted industry group. Approval was received 12 days after our letter was delivered, and this Company will be able to offer up to $235,000 of Virginia income tax credits to its new investors.

—Preserving Tax Credits

We were able to apply the “Blender’s credit” as a refundable credit on Form 8843, Schedule 3 for a bio-fuels client. Most believe that this credit can only be taken against excise taxes due, but certain qualified bio-fuel blends can actually apply this as a refundable credit, even if no excise taxes are due. This credit expired at the end of 2009, but Congress is considering an extension of the credit and we are monitoring the progress of this legislation for our other related industry clients.

—Blender’s Credit Refunds

A client sought our advice in connection with proposed co-service arrangements with customers, to determine whether the consideration received should be reported “gross” or “net” in the income statement. Through consultation with the client, we were able to educate them on the financial reporting requirements and offer advice on how to design the co-service contracts to achieve the desired financial reporting results.

—Proposed Co-Service Arrangements with Customers