Form 05-76 - Rulings Of The Tax Commissioner (Page 2 of 3) in pdf

At this time, the Internal Revenue Service has not ruled definitively on any of these

issues.

You are writing to request that the Department of Taxation institute a policy that will allow

Land Preservation Tax Credits to be maintained in spite of the fact that the credits are

based on easements donated to VOF that do not contain the language described above.

You ask that this policy remain in place even if the Internal Revenue Service disqualifies

the easements under IRC § 170(h).

RULING

The Act, codified at Va. Code § 58.1-510, et al., provides a credit equal to fifty percent of

the value of real property, or an interest in real property, donated to an eligible charitable

organization or instrumentality of the Commonwealth for eligible land conservation

purposes. In order to qualify for the credit, a donation of an interest in real property must

qualify as a charitable deduction under IRC § 170(h). See Va. Code §§ 58.1-511 and

58.1-512 B 2. This section of the IRC contains several requirements that must be met in

order for an easement to be eligible for a charitable deduction, such as the ones

discussed above.

You have requested that the Department disregard any findings made by the Internal

Revenue Service pertaining to whether the easements granted to VOF qualify as

charitable deductions under IRC § 170(h). Because the Act grants an income tax credit,

however, it must be strictly construed. This means that an easement must qualify as a

charitable deduction under IRC § 170(h). If the easement does not meet those

requirements, it also does not meet the conditions established under the Act, and,

therefore, the easement cannot qualify for the Land Preservation Tax Credit. Thus, in this

specific situation, if the Internal Revenue Service disallows a charitable deduction for the

VOF easements, the statute requires the Department to similarly disallow Virginia Land

Preservation Tax Credits. The statute provides no authority for the Department to allow an

exception.

Moreover, the Department, in its own right, may disallow the credit, regardless of whether

the IRS has acted to determine if the donation qualifies for a charitable deduction. As

noted, the Virginia statute, Va. Code § 58.1-512 B 2, expressly incorporates IRC § 170(h)

and its limitations into the requirements for eligibility to claim the Virginia credit.

Unfortunately, for purposes of the Virginia land preservation tax credit, it is not now

possible to cure the defects for the taxable year in which the donation was made by

retroactively amending the documents. If, in the circumstances you present, the taxpayers

have erroneously claimed a credit for prior tax years that is not allowed under Virginia law,

they should promptly file amended returns to remove the credit taken and remit the

additional tax owed.

I trust that this reply answers your ruling request. Copies of the Code of Virginia sections

cited are included for reference purposes. These and other reference documents are also

available on-line in the Tax Policy Library section of the Department of Taxation's web site

located at If you should have any questions regarding this ruling,

you may contact ******* in the Office of Policy and Administration, Policy Development, at

*************.

Sincerely,

Form 05-76 - Rulings Of The Tax Commissioner Page 2