Could buyers of devalued Virginia land-preservation tax credits claim additional credits that the sellers had retained instead of transferring?

Subject

Taxpayers cannot claim any Credits that were retained by the sellers

Plain-English summary

Virginia denied the buyers' protective refund claim because the sellers had not transferred the additional credits. The couple purchased land-preservation tax credits for use in 2005 and 2006, while the Department's notification form showed that the sellers retained some credits.

After Virginia later devalued the credits pro rata, the buyers argued they should be able to claim the retained amounts. The Department rejected that position: only credits actually earned or purchased could be claimed, and the Commonwealth was not a party to the private transfer transaction.

The buyers therefore remained limited to the devalued amount of the credits they actually purchased.

What this means for you

• Confirm the exact credit amount transferred on the Department's prescribed notice.
• A buyer does not acquire credit amounts the seller expressly retains.
• Later devaluation does not cause the Commonwealth to supply credits missing from the transfer.

Citations and references

• Va. Code § 58.1-513 C.
• P.D. 05-136 and P.D. 10-66.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-33

Original ruling text

March 3, 2011

Dear *:

This will reply to your letter in which you seek a refund of individual income tax paid by * (the "Taxpayers") for the 2005 and 2006 taxable years resulting from the devaluation of land preservation tax credits (the "Credits").

FACTS

The Taxpayers, a husband and wife, purchased Credits that could be claimed in 2005 and 2006. At the time of the purchase of the Credits, the notification form filed with the Department indicated that the sellers retained Credits.

The Taxpayers jointly claimed the Credits on their 2005 and 2006 returns. In 2008, the Department devalued the Credits on a pro-rata basis to all holders of the Credits. The devaluation of the Credits resulted in assessments of tax being issued to the Taxpayers for the 2005 and 2006 taxable years.

The Taxpayers paid the assessments and have filed an appeal, contending they are entitled to claim Credits that were retained by the sellers at the time of transfer.

DETERMINATION

Virginia Code § 58.1-513 C provides that a taxpayer carrying Credits may transfer unused but otherwise allowable Credits to another taxpayer. Notification of such a transfer must be made to the Department through a prescribed procedure and form. Thus, a taxpayer to whom Credits have been transferred may claim those Credits on his or her Virginia income tax return beginning in the taxable year that the transfer of the Credit occurs. Only those taxpayers who actually earn or purchase Credits may claim such credits. See Public Document (P.D.) 05-136 (8/10/2005) and P.D. 10-66 (5/1/2010).

As such, the Taxpayers may only claim the devalued amount of the Credits that they purchased in 2005 and 2006. They cannot claim any Credits that were retained by the sellers. The Credit transfer is a transaction between the transferor and transferee. The Commonwealth is not a party to the transaction and cannot grant Credits that were not transferred.

Accordingly, the Department's assessments are correct, and the Taxpayers' protective claim for refund of income taxes for the 2005 and 2006 taxable years is denied.

The Code of Virginia sections and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have questions concerning this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4520054571.B