September 12, 2014
Re: Ruling Request: Protective Claim and the Land Preservation Tax Credit
Dear *****:
This is in response to your letter requesting that Virginia allow a protective claim to toll the running of the five-year Land Preservation Tax Credit carry over period until the final resolution of a dispute.
FACTS
***** ("Taxpayer") is a wholly-owned subsidiary of the ***** ("Parent").
In 2006, the Taxpayer contributed two conservation easements to a conservation agency on two separate parcels of land in Virginia. The Taxpayer then obtained what it believed to be a qualified appraisal of the conservation easements. Based on those appraisals, the Taxpayer submitted an application for Land Preservation Tax Credits to the Department. In February 2009, the Department issued Land Preservation Tax Credits to the Taxpayer.
In May 2011, the Department notified the Taxpayer that it had reviewed the original conservation easement appraisals and because of concerns raised by its review, the Department would be obtaining new appraisals of both conservation easements. In June 2011, the Department received new appraisals of the conservation easements and found that neither had any value due to zoning restrictions which existed at the time of the contributions.
At the time that the Taxpayer received notice of the Department's concerns regarding the original appraisals, the Taxpayer had already transferred all of its credits resulting from one of the conservation easements and a small portion of its credits resulting from the other conservation easement. Subsequent to the Department's notice, the Taxpayer did not use or transfer any of its remaining unused credits.
Because the conservation easement contributions occurred in 2006, the issued Land Preservation Tax Credits were subject to the provisions of the 2006 version of the Virginia Code. The 2006 version of Va. Code § 58.1-512 C.1 provided that the Taxpayer may carry over any unused portion of its Land Preservation Tax Credits for a maximum of five years following the taxable year in which the credits originated. That gave the Taxpayer until December 2011 to use or transfer its Land Preservation Tax Credits. The Taxpayer became concerned that its dispute with the Department would not be resolved prior to the end of December 2011. Therefore, the credits would expire and the Taxpayer would not be able to use or transfer its Land Preservation Tax Credits even if it successfully defended the original appraisals.
On December 12, 2011, the Taxpayer filed a protective claim for the purpose of preserving its rights to use or transfer the unused Land Preservation Tax Credits after the five-year credit carry over period if it were to successfully defend the original conservation easement appraisals. The Taxpayer requested an eight-month extension of its rights to use or transfer the unused Land Preservation Tax Credits after the final resolution of their dispute with the Department.
On May 22, 2012, the Department issued a Final Determination Letter to the Taxpayer disallowing its Land Preservation Tax Credits. The Taxpayer timely filed an appeal of this determination pursuant to Va. Code § 58.1-1821 and the matter remains in dispute.
The Taxpayer contends that the five-year carry over period within which it may use or transfer its Land Preservation Tax Credits was tolled upon its December 12, 2011 submission of a protective claim.
DETERMINATION
This issue stems from Va. .Code § 58.1-513 C, which allows transfers of Land Preservation Tax Credits, and the Department's interpretation in Public Document 03-12, which requires that the transfer occur no later than the end of the taxable year for which it is claimed. Because the last taxable year in which this credit may be claimed by the taxpayer or its transferee is 2011, the transfers must occur on or before December 31, 2011. In this case, assessments have been made with respect to credits derived from the first easement and it appears that the taxpayer is acting as a tax matters representative to pursue administrative remedies with respect to those assessments, as well as the credits it has retained. Under Va. Code § 58.1-1824, any person who has paid an assessment of taxes administered by the Department may preserve his judicial remedies by filing a protective claim with the Tax Commissioner within three years of the assessment. This statute ties protective claims to assessments and does not mention transfers of credits.
In most cases, the administrative remedies of the retained credits would be based upon an assumption that they could have been claimed by the taxpayer; therefore, the tax paid on a return without claiming the credits constitutes a self-assessment. In this case, however, the Taxpayer is a wholly owned subsidiary of a tax-exempt entity and may not have Virginia income tax liability. The Virginia Attorney General, however, has opined in a November 19, 2001 Attorney General Opinion (2002 Att'y Gen. Ann. Rep. 094) that as long as the entity pays any Virginia tax, such as sales tax, it is a taxpayer for purposes of earning and transferring Land Preservation Tax Credits. Therefore, the Taxpayer must also be entitled to all of the administrative and judicial remedies granted to taxpayers, including protective claims.
There are three classes of taxpayers involved in this protective claim. The first is the Taxpayer who granted the easements and filed the protective claim. The second class consists of the transferees to whom the Taxpayer has already transferred credits to whom assessments may have already been made by the Department or who may have chosen to self-assess by not claiming a credit on their Taxable Year 2011 returns (hereafter "known transferees"). The final class contains the potential transferees to whom the Taxpayer may transfer credits in the future if it receives a favorable outcome from its pending appeal and this protective claim (hereafter "unknown transferees").
If the Taxpayer is ultimately found to be entitled to the disputed Land Preservation Tax Credits and transfers the credits, the known and unknown transferees will have to claim the credits on their Taxable Year 2011 returns. However, under Va. Code § 58.1-1823, taxpayers are only allowed to file an amended return within three years from the last day prescribed by the law for the timely filing of the return. If the Taxpayer's dispute regarding the appraisals of the conservation easements is not resolved on or before the expiration of the statute of limitations for the known and unknown transferees to file amended Taxable Year 2011 returns, then the known and unknown transferees will lose the right to amend their Taxable Year 2011 returns and to claim the transferred Land Preservation Tax Credits.
The Taxpayer is requesting an extension of time in which to transfer Land Preservation Tax Credits and file the related reporting forms. Further, the known and unknown transferees may need an extension of time in which to file amended Taxable Year 2011 returns to claim credits. Va. Code § 58.1-112 authorizes the Tax Commissioner to grant extensions of time to a class of taxpayers if the normal due date would cause an undue hardship. Under the circumstances of this case, I find that the normal due date for making transfers, reporting transfers, and filing amended returns claiming transferred credits may cause an undue hardship for the classes of taxpayers involved in the pending appeal. Therefore, I have the authority to grant an extension.
Accordingly, I find that the Taxpayer's protective claim tolled the running of the five-year Land Preservation Tax Credit carry over period until the final resolution of this appeal. The Taxpayer will have until one year from the final resolution of this appeal or until the expiration of the statute of limitations, whichever is later, to transfer the Land Preservation Tax Credits that it retained upon learning of the contested valuation. Additionally, the known and unknown transferees will have until one year from the final resolution of this appeal or until the expiration of the statute of limitations, whichever is later, to file amended returns for Taxable Year 2011 claiming credits transferred from the Taxpayer.
CONCLUSION
For the foregoing reasons, the Taxpayer has demonstrated that it is entitled to an extension of time in which to transfer Land Preservation Tax Credits and that the transferees are entitled to an extension of time to file the related reporting forms for Taxable Year 2011. The Code of Virginia sections and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's website. If you have additional questions, please contact ***** in the Office of Tax Policy, Policy Development Division, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
PD/1-5195161768