Did Virginia violate a transferee's taxpayer rights or miss the assessment deadline when it reduced a transferred Land Preservation Tax Credit?

Subject

Transferred land-preservation credit assessment was timely

Plain-English summary

Virginia upheld the additional 2008 income-tax assessment arising from a reduced Land Preservation Tax Credit. A donor conveyed a conservation easement, obtained a credit using its appraisal, and transferred part of the credit to the taxpayer. After an independent Department appraisal reduced the easement's value, the Department assessed the transferees.

The Tax Commissioner rejected the taxpayer's Virginia Taxpayer Bill of Rights arguments. The Department audited the donor because the dispute concerned the donation's value, notified the transferees after the credit was reduced, allowed time to ask questions, and provided formal and informal appeal procedures. The original credit letter also warned that the donation value remained subject to review, audit, challenge, and adjustment, so it was not erroneous written advice guaranteeing the amount.

The assessment was timely. Form LPC-2, the notice used to report a credit transfer, did not contain all information required of an individual income-tax return and therefore was not the return that started the assessment period. The taxpayer's 2008 return was due May 1, 2009, making May 1, 2012 the relevant deadline. Virginia issued the assessment on April 6, 2012.

What this means for you

• Buying or receiving a transferred credit does not insulate you from a later audit adjustment to the underlying donation value.
• A credit-issuance letter that expressly reserves audit and adjustment rights is not a guarantee that the amount cannot change.
• Transfer forms and income-tax returns can serve different legal functions; the ruling measured the assessment deadline from the income-tax return.
• Transferees should stay informed about the donor's valuation appeal because the donor controls the dispute over the underlying easement value.

Citations and references

• Va. Code §§ 58.1-104, 58.1-202 7, 58.1-312, 58.1-512 C 6, 58.1-1834 B, 58.1-1835, and 58.1-1845.
• 23 VAC 10-110-240.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-93

Original ruling text

June 19, 2014

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of an individual income tax assessment issued to * (the "Taxpayer") for the taxable year ended December 31, 2008. I apologize for the delay in responding to your appeal.

FACTS

In November 2008, the * (the "Donor") conveyed a conservation easement on a tract of land to a donee. Pursuant to the conveyance of the easement, the Donor registered the donation with the Department for purposes of the Land Preservation Tax Credit (the "Credit"). The Donor requested and was awarded the Credit based on an appraisal by an unrelated third party appraiser contracted by the Donor. Subsequently, the Donor transferred a portion of the Credit to the Taxpayer. The Taxpayer claimed the Credit on her 2008 Virginia individual income tax return.

A subsequent review of the Donor's application raised questions about the value of the easement for which the Credit was granted. The Department commissioned an appraisal from an independent third party appraiser. Based on this appraisal, the Credit was revalued and assessments were issued against the individuals that received the transferred Credit. As a result, additional tax and interest was assessed against the Credit holders, including the Taxpayer, for the 2008 taxable year.

In June 2012, the Donor appealed the revaluation of the Credit. The Taxpayer appealed the assessment contending that the Department violated the Virginia Taxpayer Bill of Rights (VTBR).

DETERMINATION

Virginia Taxpayer Bill of Rights

Pursuant to Va. Code § 58.1-1845, the VTBR was created to guarantee that the rights, privacy, and property of Virginia taxpayers are adequately safeguarded and protected during tax assessment, collection, and enforcement processes administered under the revenue laws of the Commonwealth and that taxpayers are treated with dignity and respect. The Taxpayer contends that the Department failed to follow the VTBR both in the devaluation of the Credit and subsequent assessment.

Tax Assistance

Virginia Code § 58.1-1845 1 provides taxpayers the right to available information and prompt, courteous and accurate responses to requests for tax assistance. Specifically, the Taxpayer complains she was not provided information concerning the Credit devaluation. The Department audited the Credit as permitted under Va. Code § 58.1-512 C 6. Because the audit concerned the valuation of the donation, the Donor was audited. After it was determined that the value of the land was overstated, the Department notified all the transferees that the Credit had been devalued.

Representation

Virginia Code §§ 58.1-1834 B and 58.1-1845 3 provide taxpayers the right to be represented or advised by counsel or other qualified representatives at any time in administrative interactions with the Department. The Taxpayer asserts the Department failed to allow time for administrative interactions. In April 2012, the Department provided notice to the Taxpayer of the devaluation by letter mailed to the Taxpayer's address of record. The notice indicated than an assessment would be issued within two weeks and provided contact information if the Taxpayer had any questions or concerns. Assessments were issued when the Taxpayer failed to respond to the Department's notice.

Written Advice

The Taxpayer contends she had the right to rely on the Department's letter issuing the Credit, and it was capricious for the Department to rely on an appraisal that was deemed by the Donor to be completed by an unqualified appraiser.

Virginia Code §§ 58.1-1835 and 58.1-1845 4 authorize the Department to abate an assessment or a portion of an assessment that is attributable to erroneous advice furnished to the taxpayer in writing by an employee of the Department acting in his official capacity. The letter issuing the Credit specifically stated that the value of any donation was subject to review, audit, and challenge by all appropriate tax authorities and, therefore, could be adjusted. As such, the Taxpayer was given notice that the value of the Credit was subject to a change.

Procedure

Pursuant to Va. Code § 58.1-1845 8, a taxpayer has the right to seek a review, through formal or informal proceedings, of any adverse decisions stemming from audits or collection proceedings. As stated above, the notice and assessment provided contact information if the Taxpayer had any questions or concerns. The Taxpayer was provided time to initiate an informal review of her case. However, the Taxpayer's return was adjusted pursuant to the audit of the Donor. As such, it was the Donor's responsibility to exert its rights under the VTBR and keep the transferees of the Credit informed as to matters related to the valuation of the Credit.

Further, Virginia Code § 58.1-1821 et seq . provides a formal appeal process in order for taxpayers to appeal tax assessments. Title 23 of the Virginia Administrative Code (VAC) 10-20-165 E makes available an informal conference procedure for tax appeals. This determination responds to the Taxpayer's formal appeal.

Statute of Limitations

The Taxpayer asserts the Department failed to issue the assessments within the time provided under Va. Code § 58.1-104. The Taxpayer contends the Department failed to timely assess the tax related to the devaluation of the Credit within the statutory limitation period because the assessment was issued more than three years after the due date of the Notification of Transfer of Land Preservation Credit (Form LPC-2). The Form LPC-2 instructions indicate that the LPC-2 form should be filed within 90 days of the Credit transfer, but at least 90 days before a taxpayer files its annual return and claims the Credit.

Virginia Code § 58.1-104 generally requires the Department to make an assessment of underpaid tax within three years from the last day prescribed by law for the timely filing of the return. Virginia Code § 58.1-202 7 grants the Department the authority to prescribe "the forms of books, schedules and blanks to be used in the assessment and collection of state taxes." Under Title 23 VAC 10-110-240, every individual required to file a return for a taxable year must complete a return as prescribed by the Department and provide the following information and documentation: (1) Social Security Number; (2) wage and tax statements; (3) signature; (4) federal income tax form or schedule verifying the computation of Virginia tax liability; and (5) a copy of the return(s) filed with the state(s) for which an out-of-state tax credit is claimed.

While the Form LPC-2 includes some of the information included in an individual income tax return, it does include all of the information required. Accordingly, a Form LPC-2 is not considered to be a return for purposes of Va. Code § 58.1-104.

Further, a well-recognized rule of statutory construction confers "a specific or special statute supersedes a general statute insofar as there is a conflict." See 1985­1986 Op. Va. Att’y Gen. 68, citing Roanoke v. Land , 137 Va. 89, 119 S.E. 59 (1923). In this case, the general statute of limitations for issuing tax assessments is provided under Va. Code § 58.1-104. For income tax purposes, however, Va. Code § 58.1-312 governs when assessments may be issued. Virginia Code § 58.1-312 allows the Department to assess omitted taxes within three years of the latter of the due date of the return or the actual date that the return was filed. Accordingly, the return subject to the limitations period is the income tax return, not a Form LPC-2.

The due date of the Taxpayer's 2008 Virginia individual income tax return was May 1, 2009. As such, an assessment would have needed to be issued prior to May 1, 2012. The assessment was issued on April 6, 2012, well within the three-year limitations period.

Land Preservation Tax Credit

The Department issued Public Document (P.D.) 14-61 (4/30/2014) upholding the valuation of the easement on the basis that the third party appraisal commissioned by the Department most accurately valued the easement.

CONCLUSION

The Department complied with the requirements of the VTBR and the assessment for the 2008 assessment was issued within the limitations period. Accordingly, the assessment issued to the Taxpayer for the 2008 taxable year is upheld. An updated bill, with interest accrued to date, will be issued.

The Code of Virginia sections, regulations, and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you have any questions about this determination, you may Contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5143320438.B