Did taxpayers receive refunds after paying assessments caused by a reduced transferred Land Preservation Tax Credit?

Subject

Refund denied after transferred land credit was revalued

Plain-English summary

Virginia denied refunds to taxpayers who had paid assessments arising from a reduced Land Preservation Tax Credit. A donor conveyed a conservation easement, obtained a credit using its appraisal, and transferred part of the credit to the taxpayers, who claimed it on their 2008 and 2009 returns.

The Department later obtained another appraisal, reduced the easement value, and assessed the transferred-credit holders. The taxpayers paid and filed a protective refund claim tied to the donor's valuation appeal.

Virginia law allowed the Commissioner either to hold the protective claim for another case or decide it on the merits. The Department treated this claim as an administrative appeal. Because P.D. 14-61 had already upheld the Department's appraisal as the most accurate valuation, the transferees' assessments remained valid and their refund request was denied.

What this means for you

• A protective claim preserves a refund issue but does not guarantee the claim will remain pending.
• The Commissioner may decide the claim on its merits under the administrative appeal procedure.
• A transferee's refund can depend on the outcome of the donor's underlying conservation-easement valuation dispute.

Citations and references

• Va. Code §§ 58.1-1821 and 58.1-1824.
• P.D. 14-61 is the separate determination the Department cited for the easement valuation.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-78

Original ruling text

May 30, 2014

Re: § 58.1-1824 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek a refund of the Virginia individual income tax paid by your clients, * (the "Taxpayers"), for the taxable years ended December 31, 2008 and 2009. I apologize for the delay in responding to your request.

FACTS

In November 2008, the * (the "Donor") conveyed a conservation easement on a tract of land to a donee. Pursuant to the conveyance of the easement, the Donor registered the donation with the Department for purposes of the Land Preservation Tax Credit (the "Credit"). The Donor requested and was awarded Credit based on an appraisal by an unrelated third party appraiser contracted by the Donor. Subsequently, the Donor transferred a portion of the Credit to the Taxpayers. The Taxpayers claimed the Credit on their 2008 and 2009 Virginia individual income tax returns.

A subsequent review of the Donor's application raised questions about the value of the easement for which the Credit was granted. The Department commissioned an appraisal from an independent third party appraiser. Based on this appraisal, the Credit was revalued and assessments were issued against the individuals that received the transferred Credit. As a result, additional tax and interest was assessed against the Credit holders, including the Taxpayers, for the 2008 and 2009 taxable years.

In June 2012, the Donor appealed the revaluation of the Credit. The Taxpayers paid the assessments and filed a protective claim referencing the appeal filed by the Donor.

DETERMINATION

Protective Claim

Virginia Code § 58.1-1824 permits taxpayers to file a protective claim for refund within three years of the date of an assessment. Pursuant to the authority granted the Tax Commissioner under Va. Code § 58.1-1824, a protective claim for refund can be held pending the outcome of another case before the courts or the claim may be decided based upon its merits pursuant to Va. Code § 58.1-1821. As permitted by statute, the Taxpayers' request has been treated as an appeal under Va. Code § 58.1-1821.

Land Preservation Tax Credit

The Department issued Public Document (P.D.) 14-61 (4/30/2014) upholding the valuation of the easement on the basis that the third party appraisal commissioned by the Department most accurately valued the easement. As such, the assessments issued to the Taxpayers for the 2008 and 2009 taxable years are upheld. Accordingly, the Taxpayers' request for a refund is denied.

The Code of Virginia sections and public document cited are available on-line at

www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you have any questions about this determination, you may contact *in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5221308721.B