Could buyers use a transferred 2006 Virginia Land Preservation Tax Credit on their 2012 return after its five-year carryover expired?

Subject

The Department cannot extend the time established by law to claim or transfer any unused Credit.

Plain-English summary

A donor earned a Virginia Land Preservation Tax Credit in 2006. A married couple purchased part of it in 2011, did not use or transfer it that year, and claimed it on their 2012 joint return.

The 2006 credit had a five-year carryover covering 2007 through 2011. Virginia's later 10-year carryover applied only to credits from property conveyed on or after January 1, 2007, so it did not revive the older credit.

Tax credits are statutory grants that Virginia construes strictly. Without legislative authority, the Department could not extend the time to use or transfer an expired credit.

Virginia also rejected the claim of inadequate guidance. The 2012 Schedule CR instructions stated the five-year rule for pre-2007 donations, and the Department's transfer acknowledgment expressly said the credit expired in 2011. The 2012 claim was denied and the assessment upheld.

Common questions

Did buying the credit in 2011 restart the carryover period? No. The expiration followed the year the credit was earned, not the transfer date.

Why did later credits receive more time? The legislature expanded the carryover only for conveyances made on or after January 1, 2007.

Citations and references

• Va. Code § 58.1-512, including § 58.1-512 C 1.
• 2006 Va. Acts Special Session I, chs. 4 and 5.
• P.D. 13-149, P.D. 15-108, and Howell's Motor Freight, Inc. v. Virginia Department of Taxation, Law No. 82-0846 (Roanoke City Circuit Court, Oct. 27, 1983).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-253

Original ruling text

December 28, 2015

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessment issued to * (the "Taxpayers"), a husband and wife, for the taxable year ended December 31, 2012.

FACTS

A Land Preservation Tax Credit (the "Credit") was issued to a donor during the 2006 taxable year. The Taxpayers purchased a part of this Credit in 2011, but did not utilize or transfer the Credit in the 2011 taxable year. They filed a joint Virginia individual income tax return for the 2012 taxable year, claiming the Credit for a portion of their income tax liability.

The Taxpayers were audited by the Department and the Credit claimed was disallowed because the carryover period of the 2006 Credit expired in 2011. As a result, an assessment for additional tax was issued. The Taxpayers appeal, contending they were unable to utilize the Credit for the 2011 taxable year. They also assert that the Department did not provide adequate guidance regarding the carryover requirements and that donations made in subsequent years have a longer carryover period.

DETERMINATION

Extension of Carryover

Virginia Code § 58.1-512 provides a Credit for 40% of the fair market value of real property or an interest in real property donated to an eligible charitable organization or instrumentality of the Commonwealth for qualifying land conservation purposes. Currently, a taxpayer may carry over the Credit for 10 consecutive taxable years (or longer under certain circumstances) following the taxable year in which the Credit was earned. The carryover period of 10 consecutive taxable years pursuant to Va. Code § 58.1-512 C 1 applies to any conveyance of property or interest in property made on or after January 1, 2007. See Chapters 4 and 5 of the 2006 Acts of Assembly , Special Session I.

For amounts of the Credit earned for the 2006 taxable year, the carryover period was five consecutive taxable years following the taxable year in which the Credit was earned. The five consecutive taxable years following the 2006 taxable year included the 2007 through 2011 taxable years. Accordingly, no Credit earned in 2006 could be claimed on a 2012 income tax return.

The Taxpayers argue that only allowing a five year carryover period is unfair because the carryover period was subsequently increased to 10 years. By reason of their character as legislative grants, statutes relating to deductions and subtractions allowable in computing income and credits allowed against a tax liability must be strictly construed against the taxpayer and in favor of the taxing authority. See Howell's Motor Freight, Inc., et al. v. Virginia Department of Taxation , Circuit Court of the City of Roanoke, Law No. 82-0846 (10/27/1983). Virginia Code § 58.1-512 C 1, as amended, specifically increased the carryover period only for donations made in taxable years beginning on after January 1, 2007. Absent statutory authority, the Department cannot extend the time established by law to claim or transfer any unused Credit. See Public Document (P.D.) 15-108 (5/15/2015).

Insufficient Guidance

The Taxpayers contend that the Department gave insufficient guidance with regard to the carryover of the Credit. A taxpayer must consult Virginia's statutes, ruling letters, regulations, court decisions, the Internal Revenue Code, and other sources of tax jurisprudence in order to compute his Virginia tax liability correctly. See P.D. 13-149 (7/31/2013). The instructions to the 2012 Schedule CR provided that the carryover period for donations originating prior to January 1, 2007 is five years. In addition, the Department's letter acknowledging the transfer of the Credit clearly stated that the Credit expired in 2011. As such, the Department provided sufficient guidance that the Credit needed to be utilized prior to its carryover expiration date.

CONCLUSION

The Taxpayers' request to claim any of the Credit at issue on their 2012 Virginia income tax return is denied, and the Department's adjustment to the 2012 taxable year return is correct. The assessment is upheld, and an updated bill will be issued. The Taxpayers should remit payment for the outstanding balance as shown on the revised bill within 30 days from the date of the revised bill to avoid the accrual of additional interest.

The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. 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/1-6131096185.B