Private Client Services Update – General Assembly Makes Changes to the Conservation Tax Credit Application Process

    By Estate, Trust & Wealth Transfer

    Included in the 2011 legislation approved by the General Assembly of the Commonwealth of Virginia are amendments that modify the conservation easement tax credit application process. The amendments (HB1820/SB1232) give the Tax Commissioner the authority, at his own discretion, to require the donor to submit a second qualified appraisal of the property subject to the easement. This second qualified appraisal will be used by the Tax Commissioner to assist with the determination of the fair market value of the donation. Written notice of the need for a second qualified appraisal must be provided to the donor within 30 days of the filing of the application for conservation tax credits. The application cannot be deemed complete and will not be eligible for consideration for tax credits until the fair market value of the donation has been determined by the Tax Commissioner. The amendments require that the Tax Commissioner make a final determination of the fair market value of the donation within 180 days of the notice that a second qualified appraisal is required. The amendments add language that offer the donor the right to appeal any decision of the Department, including the decision that a second qualified appraisal is required, in accordance with the current provisions for requesting appeals regarding actions of the Tax Commissioner.

    The determination of the value of the property to be donated has become one of the most controversial elements of the application process. Under the pre-existing statute, the Tax Commissioner was not required to make a final determination of the fair market value of the property at the time the tax credits were approved. He was only required to determine that the donor’s application was complete – that all the information supporting the request for credits had been submitted. As a result, the Tax Commissioner could challenge the value of the property provided by the donor and the credits issued for it at a later time, such as when the income tax return applying the credits was filed by the donor. The amendments imply that the Tax Commissioner must now make a fair market value determination before any application is deemed complete, but leave the process for establishing the fair market value to his discretion.

    The new changes leave several questions that have not been addressed by the legislation. For example, if the Tax Commissioner does not ask for a second appraisal, will the Tax Commissioner now be bound by the value put on the application with the first appraisal? Further, if the Tax Commissioner does ask for and receives a second appraisal from the donor but does not issue a final determination within 180 days, will the Tax Commissioner then be bound by the donor’s submission of the appraisals and, if so, by what value – the first appraisal, the second appraisal, or a combination or average of the two? These and other questions should be addressed as the amendments are implemented.

    Kaufman & Canoles attorneys have significant experience with all aspects involved in the conservation easement process–including the preparation of the documents and coordination of the studies, reports and appraisals necessary to receive approval of conservation easements and the representation of taxpayers who receive and use tax credits at the state level and/or the charitable donation deduction at the federal level. We follow changes in this program closely to provide our clients with the most current information and will track the modifications made to implement these new amendments.

    Although these amendments have been approved by the General Assembly, as of March 15, 2011, they have not yet been signed by the Governor.

    Marina Liacouras Phillips is a partner in Kaufman & Canoles’ Norfolk office where her practice focuses on environmental and administrative law. She has extensive experience working through the maze of federal, state, and local environmental laws and regulations. Marina is currently active in numerous industry organizations including the Tidewater Builder’s Association, the United States Green Building Council and the Hampton Roads Association for Commercial Real Estate. She serves on the Board of the Lynnhaven River Now, the Council for the Virginia State Bar Environmental Law Section and the EVMS Strelitz Diabetes Clinic Fundraising Task Force. Marina was recently elected the 2011-2012 Chair of the Virginia Bar Association’s Environment, Natural Resources and Energy Law Section.  She can be reached at (757) 624.3279 or

    Elaina L. Blanks is an associate in Kaufman & Canoles’ Norfolk office and is a member of the firm’s Mergers, Acquisitions & Strategic Alliances, Real Estate Strategies, and Taxation Practice Groups. Elaina focuses her practice on business taxation matters and tax controversy at the federal and state levels. Included in Elaina’s business taxation practice are matters involving entities that own real estate and the resulting tax consequences involved with the sale, transfer, liquidation or retention of those assets. Active in the community, Elaina serves on the Board of Directors of the YWCA of South Hampton Roads and is a member of Dress for Success and the Community Tax Law Project. She was also recently elected the 2011-2012 Chair of the Virginia Bar Association’s Taxation Section.  Elaina can be reached at (757) 624.3110 or

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