Conservation Partners, LLC

Q: How are land preservation tax credits created?

A: The Virginia Land Conservation Incentives Act of 1999 (Code of Virginia §§ 58.1- 510 through 58.1-513) allows a landowner who places a qualifying conservation easement on land located in Virginia to claim a credit against Virginia income tax equal to 40 percent of the value of the easement.

Q: Are land preservation tax credits transferable?

A: Yes. In 2002, the Virginia Land Conservation Incentives Act of 1999 was amended to allow easement donors to transfer unused credits to other taxpayers.

Q: How can a transferee taxpayer use land preservation tax credits?

A: A taxpayer may use up to $100,000 in land preservation credits per year, up to the taxpayer’s state income tax liability. Unused credits may be carried forward for up to ten years following the taxable year in which the credit originated. (Code of Virginia § 58.1-512, Virginia Attorney General’s Opinion # 02-094, 11-19-02). For tax credits originated prior to January 1, 2007, the carry forward period is five years.

Q: Can a husband and wife who file jointly each claim $100,000 in credits?

A: The Virginia Department of Taxation has processed claims of up to $200,000 on joint returns. Each taxpayer is required to separately own their respective $100,000 of tax credits in order to claim in excess of $100,000 on a joint return (Ruling of The Tax Commissioner, PD 05-136).

Q: Who can purchase and claim the credits?

A: “An individual, corporation, partnership, organization, trust, or estate subject to state or local” Virginia taxes may use a land preservation tax credit.” “Only those taxpayers subject to (Virginia) state income taxes… may benefit from the actual use of the tax credit to offset a tax liability.” (Virginia Attorney General’s Opinion # 02- 094, 11-19-02).

Q: Can quarterly estimated taxpayers discontinue making payments if they intend to purchase land preservation income tax credits to offset their state income tax liability?

A: Whether you discontinue your estimated payments depends on your expected tax liability. You must pay a minimum amount of your tax liability each year by having income tax withheld and/or making timely payments of estimated tax based on one of three safe harbor calculations. You should use the worksheet contained in the instructions for Form 760ES to calculate your estimated tax liability. You may incorporate an expected land preservation tax credit on the worksheet when calculating your required estimated payments. (Form 760ES Vouchers and Instructions; Page 2, Tax Credits and Adjustments).

Q: Can credits be purchased in one year and transferred the following year?

A: Depending on the availability of certain credits, Conservation Partners may be able to arrange subsequent year transfers.

Q: Can the original buyer of a credit transfer (sell) any unused credits to another entity?

A: Yes, subsequent transfers are permitted, though an additional transfer fee may be payable to the Department of Taxation. (Commissioner’s Ruling # P.D. 03-13, dated 3-4-03; (Code of Virginia § 58.1-513(C)(2)).

Q: When can a transferred credit be claimed?

A: A transferred credit may be used to offset state income tax liability incurred in the taxable year in which the credit is transferred, and in subsequent taxable years until the credit is used up or expires. A transferred credit may not be used to offset a tax liability for years prior to the year of transfer. (Commissioner’s Ruling # P.D. 03-13, dated 3-4-03).

Q: Can purchased credits be carried forward?

A: “Any portion of the credit which is unused may be carried over for a maximum of ten consecutive years following the taxable year in which the credit originated until fully expended.” The credit generated upon the donation of an easement has an eleven-year life that begins with the year in which the easement is donated. (Virginia Code § 58.1-512(C)(1); Virginia Attorney General’s Opinion # 02-094, 11-19-02). For tax credits originated prior to January 1, 2007, the carry forward period is five years.

Q: Are there risks to the buyer who purchases Virginia land preservation income tax credits?

A: Land preservation tax credits may be disallowed in whole or in part as the result of a determination by the Virginia Department of Taxation (possibly based upon a determination by the Internal Revenue Service for federal tax purposes) that one or both of the following are true:

(i) The appraisal substantiating the value of the donated easement failed to comply with all applicable requirements and/or overstated the easement’s value.

(ii) The easement donation itself (and/or any associated filings with tax authorities) failed to comply with all applicable requirements.

To mitigate these risks for credit purchasers, Conservation Partners works with easement donors and their advisors from the beginning of the easement process to help them prepare high-quality credits that meet our stringent Quality Standards. We will only market credits that meet these Standards.

Q: Have claims of land preservation tax credits been challenged by tax authorities?

A: The Virginia Department of Taxation has audited, challenged, and reduced the value of several claims of land preservation tax credits against Virginia income tax. Credit quality is an important consideration for anyone considering claiming land preservation credits against their Virginia income tax liability.

Q: Have any of the high-quality credits marketed by Conservation Partners, LLC been challenged by the Virginia Department of Taxation?

A: Emphatically NO!