June 25, 2019
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you protest the Department’s denial of the transfer of land preservation tax credits to ***** (the “Taxpayers”).
FACTS
The decedent died in December 2016 while holding unused land preservation tax credits. Her will made a specific bequest regarding certain real property she owned, and she left the remainder of her estate to the Taxpayers. The Taxpayers notified the Department in December 2018 that the decedent’s remaining credits had been transferred to them. The Department declined to recognize the transfer, and the Taxpayers filed an appeal, contending that the credits were transferrable by will.
DETERMINATION
In general, a taxpayer does not have a right to any tax credit. In Public Document (P.D.) 02-108 (7/1/2002), the Department stated that “[c]redits, deductions or exemptions allowed in the computation of an income tax are privileges accorded as a matter of legislative grace and not as a matter of taxpayer right.” See also Deputy v. duPont, 308 U.S. 488, 60 S.Ct 363 (1940), MedChem (P.R.), Inc. v. Comm'r, 295 F.3d 118, 2002 U.S. Appeals LEXIS 13831(2002) and 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). Therefore, in most instances tax credits are personal to the taxpayer and do not survive him or her. The Department has previously ruled that land preservation tax credits are not transferrable upon death. See P.D. 05-170 (12/5/2005) and P.D. 17-165 (9/13/2017).
The General Assembly recently permitted land preservation tax credits to be transferred by will, bequest or other instrument of transfer, or by intestate succession as provided by law. See 2018 House Bill 1460 (Chapter 560, Acts of Assembly). The new provision expressly provided, however, that such transfers would only be permitted “upon the death of a taxpayer occurring on and after July 1, 2018, regardless of when such unused credits were earned.” See id. Because the decedent in this case died in December 2016, the credits were not eligible to be transferred by her will.
I would note that the statute requires the bequest to be made to a “designated beneficiary.” See Virginia Code § 58.1-513 C 3. In the Department’s opinion, a residuary bequest of all property remaining after all debts and estate expenses are paid and specific bequests are made does not satisfy the statutory requirement that the transferee be a “designated beneficiary.”
The Code of Virginia sections and public document 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/1926.M