Could a revocable trust claim Virginia's Riparian Forest Buffer Protection for Waterways Credit under the law analyzed in P.D. 07-200?

Subject

Trust eligibility for the Riparian Buffer Credit

Plain-English summary

Virginia ruled that the taxpayers' revocable trust could not claim the Riparian Forest Buffer Protection for Waterways Credit under either credit statute then in effect.

One statute allowed the credit to corporations. The definition of corporation included associations, joint-stock companies, and insurance companies, but not trusts. The other statute allowed the credit to individuals and allocated qualifying entity credits to partners or S-corporation shareholders. Its definition of individual excluded fiduciaries acting for trusts or estates. Because the trust was not a corporation, individual, partnership, or S corporation, it was not an eligible claimant.

The ruling describes the credit as 25% of the value of timber left unharvested in a qualifying waterway buffer, limited to $17,500 or the total income tax, whichever was less. But the taxpayers supplied no facts about whether their tracts met those substantive requirements, so the Commissioner expressly declined to decide whether the land itself qualified.

What this means for you

• Entity eligibility and property eligibility were separate questions under the statutes analyzed in 2007.
• Holding land in a revocable trust prevented the trust from fitting the listed claimant categories in this ruling.
• The Commissioner did not decide whether the land abutted a waterway, whether timber was properly retained, or whether any other credit condition was satisfied.
• The dollar amount depended on timber value and income tax, subject to the ruling's stated $17,500 ceiling.
• This is historical guidance; current eligibility should be checked under current law.

Common questions

Did the trust qualify for the credit?

No. The Commissioner found that a trust did not fit either statute's eligible taxpayer categories.

Could individuals, partnerships, or S corporations qualify?

The ruling says individuals could qualify under Va. Code § 58.1-339.10 and that qualifying credit could be allocated from partnerships and S corporations to their individual owners.

Did the ruling decide whether the property met the conservation requirements?

No. It expressly stated that no information had been supplied on those requirements and rendered no opinion on the land's qualification.

Why is the original letter dated 3007 below?

That is how the Department's reproduced letter reads. The official page metadata and ruling number identify the date as November 30, 2007.

Citations and references

• Va. Code § 58.1-302.
• Va. Code § 58.1-339.10, including subsection C.
• Va. Code § 58.1-439.12.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-200

Original ruling text

November 30, 3007

Re: Ruling Request: Use of the Riparian Forest Buffer Protection for Waterways

Credit by Trusts

Dear *:

This is in response to your letter of July 23, 2007, in which you requested a ruling regarding the Riparian Forest Buffer Protection for Waterways Credit (the "Riparian Buffer Credit") on behalf of * (the "Taxpayers"). I apologize for the delay in this response.

FACTS

The Taxpayers have placed several tracts of land into a revocable trust naming themselves as trustees. The trust was established in order to allow the Taxpayers to manage certain assets during the Taxpayers' lives, as well as to provide for the disposition of these assets upon their deaths.

You are writing to inquire whether the Taxpayers' trust may qualify to earn the Riparian Buffer Credit. Please note that no information has been provided regarding the specific qualifications for this credit. Therefore, no opinion is rendered regarding whether or not any land held in the Taxpayers' trust would qualify for the credit.

RULING

The Riparian Buffer Credit allows a tax credit to certain taxpayers who own land abutting a waterway and who forbear harvesting timber on certain portions of that land. The credit is equal to twenty-five percent of the value of the timber in the portion of the land retained as a buffer, but may not exceed $17,500 or the total amount of income tax, whichever is less.

Under Va. Code § 58.1-439.12, the Riparian Buffer Credit is allowed to any corporation that owns the specified land. Virginia Code § 58.1-302 defines "corporation" to include associations, joint stock companies and insurance companies. Because a trust does not fall under the definition of a corporation, it may not qualify for the credit under Va. Code § 58.1-439.12.

The Riparian Buffer Credit is also allowed under a different section of the Code, however. Virginia Code § 58.1-339.10 allows the credit to individuals that own the specified land. Individuals are defined as "all natural persons whether married or unmarried and fiduciaries acting for natural persons, but not fiduciaries acting for trusts or estates" in Va. Code § 58.1-302. In addition, § 58.1-339.10 C states, "For purposes of this section, the amount of any credit attributable to qualified buffer protection by a partnership or electing small business corporation (S Corporation) shall be allocated to the individual partners or shareholders in proportion to their ownership or interest in the partnership or S Corporation." Accordingly, partnerships and S Corporations also would qualify to claim the credit. Because a trust is not an individual, partnership, or S Corporation, it may not qualify for the Riparian Buffer Credit under Va. Code § 58.1­339.10.

Therefore, because trusts may not qualify for the Riparian Buffer Credit under either of the Code sections that establish the credit, the Taxpayers' trust may not claim the credit.

I trust that this reply answers your ruling request. The Code of Virginia sections cited and other reference documents are available on-line in the Tax Policy Library section of the Department of Taxation's web site located at www.tax.virginia.gov. If you should have any questions regarding this ruling, you may contact * in the Office of Policy and Administration, Policy Development, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner