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The Silver Cos. has settled a six-year dispute with the Virginia Department of Taxation over tax credits tied to Celebrate Virginia.
The agreement was disclosed in a letter from Silver Cos. CEO Larry Silver to hundreds of investors who bought the Virginia land-preservation tax credits tied to the mixed-use development along the Rappahannock River in Fredericksburg and Stafford County.
Silver refunded $7.2 million to the state and about 400 mostly local investors who purchased the tax credits. Investors were not made whole; it appears from documents reviewed by The Free Lance-Star that Silver covered only about half of what the investors owed in back taxes and interest.
As part of Celebrate Virginia, the Silver Cos. in 2003 set up conservation easements on 308 acres along the Rappahannock in Stafford and 129 acres in Fredericksburg.
KTR Newmark Real Estate Services of New York set the fair market value of the easement on the 129-acre parcel at $31.8 million. The 308-acre Stafford easement was valued at $24 million, bringing the total for both tracts to about $56 million.
Under the tax-credit program, the Silver Cos. qualified for $28 million in total credits, based on half of the easements' total appraised value. Unused credits can be transferred or sold, so the company used its allotment of credits and sold the rest to about 400 investors.
Beginning in 2004, the state tax department questioned the accuracy of the appraisals, suggesting that they were too high.
Then three years later, in May 2007, after getting its own appraisals, the agency notified Silver and the investors that the credits were no good, saying the value of the easements was overstated.
Silver, by far the largest commercial development firm in the Fredericksburg area, has disputed that point all along.
In a letter last month to investors announcing the settlement, Larry Silver said he reluctantly decided to end the fight.
"It is extremely frustrating to us that we protected hundreds of acres of land fronting the Rappahannock River but did not receive what we believe is the full value in credits for the easement," he wrote.
"As the saying goes, no good deed goes unpunished."
Silver said the company spent more than $2 million on attorneys, accountants, engineers and appraisers.
"Personally, my heart told me to fight this unfairness, but my mind said litigation would be a continuing waste of time," he wrote.
The tax department does not comment on matters involving individual taxpayers, and has declined to discuss this case.
After securing its own appraisals, the tax department determined that the river easements should have been valued at $5.6 million, with allowable tax credits of $2.8 million--only a fraction of the KTR Newmark appraisal.
Under the settlement, investors had to file amended tax returns to reflect the reduced value of the credits and pay the additional tax and interest. Half the accrued interest was waived; no penalties were assessed.
Silver then reimbursed each investor for about half of what he owed. For example, someone who paid $40,000 to settle the tax liability paid less than $20,000 out of his own pocket.
Many of the investors were local business people and professionals who were shocked when the tax department stepped in to challenge the credits that they bought in a good deal--50 cents on the dollar.
Silver, who now has an office in Boca Raton, Fla., was unavailable for comment on the settlement or his letter. Craig Bell, the attorney for McGuireWoods law firm in Richmond who represented the investors in the matter, did not respond to several requests for comment.
One area investor who had to pay tens of thousands of dollars extra in taxes said simply: "It's over. It's settled."
The matter didn't end there: Appraisals on Celebrate Virginia and several other large parcels in Virginia where millions of dollars in tax credits were claimed prompted the General Assembly to place a cap on them in 2007.
Rusty Dennen: 540/374-5431
Virginia's land-preservation tax credit now allows an income tax credit for 40 percent of the value of donated land or conservation easements.
From 2002 through 2008, the allowable credit was 50 percent of the value, and taxpayers could use up to $100,000 per year for the year of the donation and the 10 subsequent tax years.
For 2009 through 2011, taxpayers are allowed up to $50,000 per year for the year of the donation, then 13 subsequent tax years for taxpayers affected by the credit reduction for those years.
Unused credits can be sold to other investors.
--Virginia Department of Conservation and Recreation