Hello!
Yes, VA Dept of Taxation finally accepted our return with the credit. We had no issues with the federal return (although it took IRS 2.5 years to process it during the pandemic).
For the federal return, we followed the steps under "Taking the credit in TurboTax CD/Download" at this link:
What is a claim of right repayment?
For the VA return, we followed MaryK's advice above (logging the credit as an Estimated Payment) and mailed in the return; however, VA initially rejected it. Long story short, it was rejected due to a combination of the following reasons: 1) the credit amount was not actually an estimated payment; 2) the schedule we submitted showing how the credit was calculated was likely not in the format they needed; and 3) IRS had not yet processed our federal return. So, they argued there was nothing to 'back up' this credit.
Ultimately, the following steps worked for us with the Virginia return:
1) Follow MaryK's advice above.
2) Attach a line-by-line spreadsheet with all amounts from the prior year VA Form 760, columns to include: Line No., Line Description, Original Amount, Refigured Amount Net of Repayment, and Difference (Original vs. Refigured Amount).
3) If possible, attach a copy of your IRS Record of Account transcript for that year, evidencing that your federal return with a similar credit was processed. Granted, this may not be available when you file due to IRS processing times.
Best of luck! Getting the Virginia situation sorted out was so stressful for us, but ultimately it was the line-by-line spreadsheet (#2) that helped us most. We even tried enlisting the help of a tax pro, but weren't able to find anyone who was familiar or willing to help with this situation.
