Land tax credits rejected by state

Hundreds of investors who bought tax credits connected with the Silver Cos. Celebrate Virginia project have gotten some bad news.

The credits, which shaved millions of dollars off tax returns, are no good, according to the state Department of Taxation.

One of the letters, to an investor who asked to remain anonymous, begins: "Dear taxpayer: You have been identified as a direct or indirect recipient of one or more land preservation tax credits that originated with conservation easements" with Greenbank LLC, Celebrate Virginia Corporate Campus LLC, and Silver Celebrate Virginia Golf--three Silver Cos. subsidiaries.

Celebrate Virginia, currently under development straddling the Rappahannock River in Fredericksburg and Stafford County, is the region's largest mixed-used project.

"The [department] has determined that the value of the conservation easements has been overstated " the letter reads, going on to say that credits claimed under each entity were reduced by 100 percent. The letter does not explain why that reduction was made.

As part of Celebrate Virginia, the Silver Cos. set up conservation easements on 308 acres in Stafford, and 129 acres in Fredericksburg.

The company then claimed land preservation tax credits under a Virginia program that allowed it to use up to $100,000 in credits annually for up to six years, and to sell the rest. The state encourages the voluntary protection of open space by giving landowners and investors the tax breaks.

Silver qualified for up to $28 million in tax credits, but sold them at an attractive discount--at about 50 cents on the dollar.

Jud Honaker, an executive officer for the Silver Cos., said yesterday that the company believes the credits are legitimate.

Honaker said about 400 investors bought them. He did not know the total dollar amount sold.

"We will be taking action to deal with the state's claim," he said. "This is clearly far from being over."

Jesse Holshouser, the Silver Cos.' chief operating officer in Boca Raton, Fla., is handling the matter. He said yesterday that the companies became aware of the state's position only last week.

In a letter sent today to investors, he wrote, "We believe that we have more than adequate support for our valuations, including bona fide appraisals and other relevant information. Accordingly, we intend vigorously to challenge the decision by the [tax] department."

Charles G. McDaniel, owner of Hilldrup Moving and Storage in Stafford, bought some of the credits and got the letter from the state.

"Right now I don't fully understand the situation. I'm having my attorneys and advisers looking into it. I'm not in a position to tell you much."

McDaniel said several others at the moving firm also bought some credits. He declined to say how much he purchased.

Typically, when a credit or deduction is disallowed by the tax agency, the taxpayer has to pay the amount owed, plus interest. In this case, because there was no bad faith on the part of investors, no penalty would be assessed, according to the state tax department.

Keith Wampler, a local certified public accountant, said some of his clients received the letters.

He added, "Most any CPA firm in the area probably has clients that would be affected."

It's been no secret that the Celebrate Virginia credits have been under scrutiny. Not long after they went on the market, questions were raised about whether the land was overvalued for tax purposes.

Questions were also raised about whether the credits were justified, or ineligible as part of proffers for approval of Celebrate Virginia. Honaker denied that's the case.

Two years ago, the Department of Taxation--without naming the landowners for privacy reasons--said it was rechecking appraisals on some parcels around the state where high-dollar tax credits were claimed.

One source said that Silver had told investors it would take back the credits if there was a problem. But that offer expired in December.

Joel Davison, spokesman for the Department of Taxation, on Friday declined to comment on the Silvers' tax credits, for privacy reasons.

But he added, "We continue to review additional conservation easements that we believe have the most serious [valuation] problems."

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Land tax credits rejected by state

May 1, 2007 12:35 am