Dancing with the Devil

(Ed. note: The Colorado Department of Revenue has changed its mind about some of the Conservation Easements it granted as far back as 7 years ago. Now, claiming the appraisals it approved were too high, Colorado wants to go back in time and change the appraisals. And they want the tax credits back, even though they may have already been legally sold. Can you imagine a buyer, after waiting 7 years after a deal has been closed, coming back with a lawsuit claiming the appraisal, which it accepted at the time, was too high?)

Hard Truth About Easements - The Pueblo Chieftain

Over-appraisals are pushing some to bankruptcy.
Posted: Friday, August 6, 2010

DENVER — The Colorado Department of Revenue’s refusal to honor conservation easement tax credits isn’t just frustrating citizens — it’s taxing their patience.

A room full of angry landowners, most of them from Southeastern Colorado, told a legislative special committee on Wednesday that the Department of Revenue has cast a menacing shadow over their lives by its challenges to their tax credits.

“I’m more comfortable irrigating or rounding cattle” than speaking to a table full of legislators and bureaucrats, said Sylvia McComber of Rocky Ford. About 40 heads in the room bobbed in agreement. But McComber said the trek to the State Capitol was worth her time in order to get answers.

In December 2003, McComber and her husband entered into the conservation easement tax credit program. Participants agree to leave spaces on their properties unused and open. In turn, they can claim a tax break from the state.

Colorado allows the sale of those tax credits, and many family farms sell the credits at less than their actual value to folks with steep tax implications.

Many, like McComber, use the proceeds from selling tax credits to subsist or keep the family farm afloat.

McComber gave little thought to the tax credits she’d collected and sold seven years ago, until February, when the Department of Revenue sent her a bill for $70,000 (of that, $20,000 was interest and penalties) and threatened to seize her bank account if it wasn’t paid within 10 days.

She delayed that step when she filed a protest with the Department of Revenue, but it was denied, and now she has less than one month to pay up.

“There’s no money left,” she said. “It’s a bankruptcy issue.”

McComber’s situation fits with about 97 percent of the conservation easement tax credits that the state has denied. They stem from disagreements between the Department of Revenue’s perceived value of a property and the appraisal the landowner commissioned in order to qualify for the tax credit, according to Roxy Huber, executive director of the Colorado Department of Revenue.

In 2008, the Colorado Division of Real Estate became suspicious of the high appraisal values the state was seeing on land used for conservation easement tax credits. In the aftermath of the suspicion that appraisals had been inflated, a higher degree of scrutiny was applied, and internal Department of Revenue reviews began rejecting the tax credit claims at a higher rate, some of them retroactively, like McComber’s.

Since 2000, the Department of Revenue has approved 2,847 conservation easement tax credits valued at $554 million, according to Huber.

During the same time, 355 have been denied. More than 20 percent of the denied credits are concentrated in two Southeastern Colorado counties, 48 of them in Bent and 33 of them in Prowers.

“Every other county has less than 10” denied conservation easement tax credit claims during the past decade, Huber said. “Geographically and from an appraisal standpoint, we realize that (area) has to be the focus of the expertise.”

According to legislative fiscal analysis, $169 million in revenue is at stake in disputed claims.

Peppered with a barrage of complaints from landowners that the Department of Revenue’s stance has only served to worsen complicated legal entanglements with the IRS and tax credit buyers, Huber offered guarded sympathy.

“The emotional side of this is exactly that,” she said. “People have taken steps that put their livelihoods at risk. There’s a lot of stuff to unwind in these situations. It’s a ‘buyer-beware’ situation when you enter into this.”

Jillane Hixson of Lamar is struggling to unwind the knotted legal and financial nightmare of her conservation tax easement.

After the state rejected Hixson’s 2003 easement claim, lawsuits ensued between her and the buyer, leaving her with not only a sizeable tax burden that she had presumed wouldn’t exist, but also a $200,000 judgment in court that includes paying the credit buyer’s attorney fees.

“It seems to me I have been denied due process at every turn,” Hixson said. “What do you do? You call your lawyer, and then you’re out another $2,000.”

She’s been beset with threats of garnishment and asset seizure by the Department of Revenue, some of which they’ve made good on and others that have been by mistake.

“I don’t see the end of it,” Hixson lamented.

Rep. Wes McKinley, D-Walsh, hopes to provide that end. He ran legislation last session seeking to require the Department of Revenue to honor the conservation easement tax credits issued before 2008, but it was killed.

Instead, a process was established for the Colorado Attorney General’s Office to mediate disputed conservation easement cases in hopes that settlement agreements can be reached. The first round of conferences are set to begin in September.

Huber isn’t confident that the process will resolve most of the disputes. Those that aren’t mediated to resolution will likely become lawsuits.

“Some of these are going to go to court,” Huber said. “We’re just so far apart that we’re never going to get there in the negotiation process.”

Some of the appraisals that landowners cling to for valuing their credits are 400 times higher than the value placed on them by the Department of Revenue, Huber said.

McKinley said if he is re-elected he will carry another bill seeking amnesty for landowners with conservation easement tax credits.

That drew a favorable reaction from the landowners in attendance, one of very few for the government officials on hand.

Warren McDonald, a property owner from Weston, said a current of general mistrust of government runs through some rural communities, and when he was set to enter into a conservation easement pact with the state many neighbors warned him that he was dancing with the devil

“Today, they were right,” he said.