Sharon Cairns Mann:  award-winning author
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Blog Post #10:  “The Law Was Made for You.” 

7/29/2016

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(Spoiler alert: This article repeats a little info explained previously, but in the context of this narrative, duplication enhances the story.)
 
The lavish offices of Wishful Thinking, P.C. in Denver are designed to impress and they do.  As one of the largest law firms in Denver, it perches proudly on one of the highest floors of the Tabor center, smartly situated in the heart of downtown. The polished stone surfaces of the lobby below are just a prelude to the extravagant, tasteful, soothing décor that greets us as we step off the elevator.  Everything suggests money, success, prominence, and positive outcomes for anyone seeking an attorney.  In fact, the ambience does more than hint – it shrieks that anyone working here is clearly the best, at the pinnacle of the dog-eat-dog attorney pile in Denver.
 
Todd -- handsome, friendly, and confident -- bounds into the waiting room to meet us. We immediately like him, and we chat about our mutual affinities (Ken, homes in Arvada, our church affiliation).  We bond. 
 
He ushers us into a small conference room.  We explain our situation.  We are still in the middle of this vexatious lawsuit with T.C., with no clear indication of how it will turn out.  It’s only August and our arbitration date isn’t set until November.  We are sick to death of the development-hamster-wheel we’ve been on for nine years with nothing to show for it.  If things turn out okay for us in the lawsuit, we want to have some options beyond a 20-to-30 year development project.  We’re exploring alternatives.  What is a conservation easement?
 
What is a conservation easement?
 
Todd positively beams at us.  “Conservation easements are the best thing that’s ever happened.  Everyone loves them.  The state loves them, the donors love them, and the citizens of Colorado love them.  It is a win-win-win situation.  Even the IRS loves them.”
 
He hops out of his seat, steps to the white board and starts drawing.  “Land, as you know, has severable rights,” he explains.  “You know, for example, that you can keep your land, but sell the mineral rights to someone else.” 
 
We nod – we know this.  Stan has practiced real estate law for years.
 
“There’s also such a thing as “development rights” associated with your land.  You can keep your land and sever the development rights, and sell those to someone else.  In the case of conservation easements, you don’t sell them; you donate them to a land trust which creates a permanent conservation easement on your land.”  He adds squares and arrows to his diagram.
 
“Why would we do that?”
 
“The state can’t afford to buy all the land it wants in order to create open space here in Colorado.  Open space land is expensive, and the state doesn’t want to have to spend the funds to acquire and then manage the lands.  So, they have created incentives for landowners to put their land into conservation easements.  It will organically preserve open space and views, without the state having to do a thing.”
 
Our Land Is Valuable
 
I object.  “Our land is extremely valuable – we’re poised to do a development.  As lovely as it sounds to create a conservation easement, we can’t just give it away.  We have a fiduciary responsibility to our partners to make money for them.  What’s the incentive?”
 
“First, we have to appraise your land.  If a parcel meets the value threshold set by the state, the state will give the landowner a tax credit for donating the parcel as a conservation easement.  It’s a large tax credit -- $260,000.  And, as you know, a tax credit is a dollar-for-dollar reduction of your tax liability – not your income.”
 
“That would be worthless to us.  Our partnership has no tax liability – it has never had any income.”
 
“Exactly!” Todd smiles as if our business poverty is wonderful news.  He continues to draw on the white board.  The state recognizes that the majority of people doing conservation easements will be land-rich but cash-poor ranchers or landowners, so they’ve created a perfectly legal mechanism by which you can sell the tax credit.”
 
“Sell the tax credit?  Who would buy it?”  Flaky, I think.
 
Who would buy a tax credit?
 
“Oh, lots of rich people.  The Brad Pitts of the world.  People who need to reduce their tax liability.  They are called ‘transferees.’”
 
“How on earth would we find these people?  This sounds tricky and complicated.”
 
“Not at all, not at all!  That’s what we do for you!  We are a one-stop shop.  We’ll arrange the appraisal, find the right land trust for you, draw up the paperwork, and find the transferees.”
 
“So, we transfer the $260,000 credit to them – what do we get?  How do we make any money?”
 
“The state doesn’t regulate the sale of tax credits at all.  There is a market for them, and the average going rate is 80 cents on the dollar.  So, the transferee would pay you $208,000.  That gives them a tax credit of $260,000, so they save $52,000!  That’s why it is worth it to them.  It makes no difference to the state who takes the tax credit and what they’ve paid for them.”
 
“So how do you find these people?”
 
“Find them?” Todd laughs.  “I’m a tax attorney – I’ve got people lined up to buy these.  This is big!  This is huge!  Everyone wants in on this.  In fact, I’ve got so much business Wishful Thinking has given me the green light to focus on this full time.”
 
“Well, $208,000 is a nice amount of money but we expected to make much bigger profits than that on a development. By a long shot.”
 
“How big is your piece of land?”
 
“One thousand acres.”
 
“And how many partners do you have?”
 
“There are 24, including me.  Stan is not a partner, he just helps manage.”
 
“Fabulous.  Perfect.  The law was made for you.  Let me show you what we can do.”  Todd begins sketching frantically on the white board, showing how we’ll divide up the land into 35-acre parcels** and make multiple donations.  “And remember – I’m a ‘one-stop shop’ for you. I do all the paperwork for you.”
 
He hands us a stack of glossy brochures and articles about conservation easements. We agree to think about it.  Pray about it.  And then we put it on the back burner while we slog through the irritating details of the lawsuit.

 
*For those of you not familiar with real-estate in Colorado, 35 is a “magic number.”  When lots equal or exceed 35 acres in size, the development is exempt from subdivision regulations, and having a 35-acre lot allows the owner to get a domestic well permit (not allowed under 35-acres).  © Sharon Cairns Mann
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Blog Post #9:  The Thing that Was Said that Changed Everything

7/27/2016

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“You should put it all in conservation easements,” Ken says.   
 
I don’t understand a word of that sentence.  The earth tilts on its axis when Ken says those words, but I don’t yet know it.  My life will never be the same, but I don’t know it.    
 
It is July 4, 2005, and the top of my head might blow off.  It has only been seven weeks since the deputy sheriff showed up on my doorstep, and we are now in the middle of a hopeless legal muddle about T.C. and living with turmoil and anxiety. We have found an attorney to represent us and our partners and are plodding forward on the lawsuit, digging through files to answer interrogatories by day, and going to bed with white knuckles at night.
 
We decide to spend the 4th of July in Denver, and we attend the picnic sponsored by our church.  Ken and Sharon host the picnic on their spacious horse property in northwest Arvada. Stan and I sit on a blanket beneath a tree, chatting with friends.  I put myself on social auto-pilot, smiling, nodding, and joking while wondering if I’m the only one who feels the world may end soon. 
 
Ken strolls by, stops, and asks how our development is coming along.  He is kind and interested.  Stan tells him our woes about the lawsuit.  Ken listens and asks good, probing questions.  Then he says, “You should put the land in conservation easements.”  We stare at him.  Even Stan, who is an attorney, doesn’t know what a conservation easement is.  “You get to keep the land and use it.  This piece that we’re on right now is in a conservation easement.  I can’t explain it very well.  It’s complicated.  Just call my attorney.  He lives right there….” Ken points to a large home surrounded by luxurious horse property.  He pulls a tiny notebook and pen from his pocket and scribbles his attorney’s name: Todd. “Really.  You need to talk to Todd.  We’re so happy we did it – best decision we ever made,” Ken says.
 
On our way home I ask Stan, “What is a conservation easement?” 
 
“I’m not really sure,” he says.  “But it won’t hurt to find out.”  
© Sharon Cairns Mann
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Blog Post #8:  A Knock at the Door

7/22/2016

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Picture
So, there we were, sitting pretty.  We had a beautiful subdivision planned, and after years of hard work, we were making progress.
 
But, one day, while Stan was out of town, there was a knock on the front door.  The Huerfano County Deputy Sheriff stood on the front step. He was serving me with a lawsuit that T.C. had filed against the partnership and against Stan personally.
 
I signed for the documents, and the sheriff left.  I started reading and my hands began to shake. T.C. was suing us for millions and millions of dollars in future profits that he was allegedly losing because we had broken our contract with him. Huh?  He was the one who had never signed the contract!  The allegations made no sense[i], but we had to go through the wringer of counter-suing, and months and months of sleeplessness and anxiety as we worked with attorneys to decipher this unexpected development.  We were bewildered about what had gone wrong and what to do next. 
 
We diligently searched for a new development partner, or some way to rescue this project, and all the time and money we had invested in it.  Nine years had now passed since we initially purchased the property.  We were truly heartsick on behalf of our partners who had begun to hope to make a better-than-expected return on their money from this development. What on earth could we do to rescue this sinking ship?   
© Sharon Cairns Mann

[i] While I would love to provide details, I’m prohibited by the final settlement from doing so.

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​Blog Post #7: The Sizzle:   Enthusiasm Explained

7/19/2016

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Los Leones is a proposed, full-amenity development in Southern Colorado of approximately 1000 acres, which could yield between 500 and 1000 lots.  
I realize that I have not yet adequately described the property and the development. So, let’s digress from the narration of this story to answer a couple of questions:  Why were we so enthusiastic about it?  Why did we think so highly of this piece of property?  It will be important for you to be able to see it through our eyes and to have some of these details in order for the subsequent story to make sense.
 
After our work from about 1996-2001 and then with T.C. from about 2001-2005, the status in the spring of 2005 is as follows (text taken from marketing literature we had developed at that time).
 
The Sizzle
 
Los Leones is a proposed, full-amenity development in Southern Colorado of approximately 1000 acres, which could yield between 500 and 1000 lots.  (Dear Reader, please bookmark those numbers.)
 
The property is an ideal location for retirement or second homes.  The opportunity for a local market also exists. This property boasts excellent features, such as:
 
  • Views of the Wet Mountains, the Sangre de Cristos, and the San Juans make it aesthetically appealing.    
  • At an elevation of 6100 feet, the climate is considered “high desert,” and is generally dry and comfortable year-round.   
  • The subject property is nicely undulated, providing pleasant natural variation for future lots.  Natural vegetation includes scrub cedar, scrub oak, piñon, juniper, and several varieties of cacti. 
  • The cost of living is lower than in Denver or Santa Fe, and yet is within reasonable driving distance of both metro areas. 
  • While there are many so-called “subdivisions” in southern Colorado, the majority of them are merely large tracts that have been subdivided into 35-acre sites, with electricity pulled to the lot-line, gravel roads and no other improvements.  Buyers must drill their own wells and build their own homes.  While this may be attractive to a certain buyer, many people looking for retirement or second homes want more amenities, a guarantee of water, and do not want to deal with building their own home. 
As a full-amenity community, Los Leones will include bridal paths, communal barns, tennis courts, a recreation center, open space and a golf course.  Currently there is no competition for a fully amenitized development in Huerfano County.
 
The subject property has some other inherent benefits:
 
  • It straddles Exit 49 on I-25, providing easy access and some developable (and potentially profitable) commercial acreage.
  • It is bisected by a single, well-maintained county road.
  • A transferable water/sewer agreement with the City of Walsenburg for the first 41 lots has already been consummated.
  • The development is close to the City of Walsenburg (it has a contiguous border with the City), which is also the County seat, providing easy access to merchants and governmental entities.
  • There is a regional medical facility nearby.
  • There is a State Veteran’s nursing home nearby.
  • The existing art community (an arts council, theater, and writing group) is healthy, active, and growing.
 
In summary, the proposed Los Leones development has much to offer to the local community, to future homeowners, and to interested developers.
 
Background Information
 
Initial planning for the development has been done with the county, with the first two filings approved and the third one in process.  A cordial relationship exists with the county commissioners, the county planner, and the zoning enforcement officer/building inspector.  In addition, we have a water/sewer agreement with the City for the first two filings.
 
  • Filing 1 consists of 50.046 acres and was designed to allow the completion of two single-family residences in the County prior to obtaining a change in zoning allowing smaller lots. 
  • Lot 1 of Filing 1 of Los Leones Subdivision contains 3.952 acres of land and there is already a single-family residence on it. 
  • Lot 2 of Filing 1 contains 4.456 acres of land and has a single-family residence on it.
  • Tract A of Filing 1 contains 30.568 acres of land that has been rezoned from A, Agricultural, to UR, Urbanizing Residential, under the 1999 Edition of the Huerfano County Land Development Guide.  Tract A is included in the subject property and will eventually have to be re-subdivided according to future development plans.
  • Filing 2 of Los Leones Subdivision in its final approved form consists of 22.806 acres upon which 41 single-family lots are located. Filing 2 has also been rezoned from A, Agricultural, to UR, Urbanizing Residential, under the 1999 Edition of the Huerfano County Land Development Guide. 
 
The Land
 
The land lies adjacent to the south City boundary of the home-rule City of Walsenburg, Colorado.  Walsenburg is approximately 43 miles south of Pueblo, Colorado, and approximately the same distance north of Trinidad, Colorado. 
 
The land is bisected from north to south by a county-maintained gravel road designated as County Road 330 (also known as Ideal Road). 
 
The land lies a few hundred feet south of State Highway 160, and to the west of Interstate 25, and actually spans Interstate 25 at Exit 49 (the intersection of State Highway 160 and Interstate 25), an excellent advantage providing for approximately seven-to-twelve acres of commercial development on the east side of Interstate 25.
 
In addition, a frontage road runs parallel to Interstate 25 (on the west side of the interstate) for several hundred yards along the entire length of the easterly boundary of the property.
 
According to the recent land surveys, the available land for development amounts to 992.036 acres in total.  For ease in discussions, presentations, and proposals we refer to the project as a 1000-acre development. 
 
County undermining maps indicate no mining or mines have ever existed upon the property. (Readers, this is significant in this area.)
 
Zoning of the property was originally A, Agricultural District, under the 1999 Edition of the Huerfano County Land Development Guide.  However, Los Leones Filing 1, Lot 3 and Tract A, included in the subject property, and all of Filing 2 have been rezoned to UR, Urbanizing Residential District, pursuant to the Land Development Guide.  Urbanizing Residential District requires:
 
  • Minimum district size: 10 acres
  • Minimum lot area:  6,250 square feet
  • Minimum lot width:  50 feet
  • Front yard setback:  20 feet
  • Side yard setback:  7.5 feet for walls and 5 feet for building projections
  • Rear yard setback:  25 feet
  • Maximum building height:  45 feet
  • Minimum dwelling size:  600 square feet
  • Maximum lot coverage:  50 %.
 
Two-family dwellings are allowed by right in this zone, and multiple family dwellings, commercial businesses and office buildings are allowed as conditional uses.
 
Natural gas and electricity exist upon the property, and several easements have been granted for these improvements and improvement surveys completed.
 
The Money
 
And finally, as a result of all our projections, we thought we were looking at approximately $13 million in total profits for the first 200 lots per year over five years (or possibly more).  I tried to insert one of the charts here, and it didn't reproduce well -- and the details don't matter.  But please understand that this was a legitimate subdivision of great value.

Conclusion
 
In conclusion, from reading a description of the amazing natural benefits of the land, the improvements we had made, the plans for a beautiful and affordable amenitized community, and projections of our future profits, you can see why we were wildly enthusiastic about the project. And the above marketing material was written in 2005 – just before we had ever heard of a conservation easement. ©
Sharon Cairns Mann 
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Bog Post #6:  It Should Have Been Simple

7/14/2016

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The City agreed to annex our property (all duly noted in City Council meetings over those four years), and we kept moving forward with our development plans.  But, then the City did something remarkable:  the City agreed to grant us extra-territorial water rights. 
Developing that parcel of land should have been simple. The City of Walsenburg needed good quality affordable housing to attract teachers and medical personnel to the town. In addition, the correctional facility was open at that time, and correctional officers were required to live within a certain distance of the prison - meaning exactly where our proposed development was.  Unfortunately, the real estate inventory in town consisted of homes built in the 1920s – falling-down miner’s shacks, with outdated plumbing, and faulty wiring. They were all fixer-uppers beyond compare, incapable of attracting the new residents the town desperately needed and wanted.
 
It seemed obvious to us that the City of Walsenburg should annex our property, and we would put a development on it.  We spent about four years (1996-2000) trying to convince the City Council of this notion, but they were not a progressive-thinking group at that time, and they stalled and dragged their feet.
 
Then, we enticed our former development partner, an architect named Rich McCabe, of Core Corporation in Boulder into taking a look at the property.  He was extremely talented and knowledgeable, and we had worked well together in the past (Dakota Ridge in North Boulder, previously known as the Mann property).  He drew up some amazing plans for our new property, and to this day, I wish we had been able to execute on his plans.  But, he lived four hours away in Boulder, and when a personal family tragedy struck he called and said, “I’m sorry, guys, but I don’t have the energy to do this project.  But I think you should connect with T.C.  He was the surveyor on the Dakota Ridge project, and I think he’s got the wherewithal to do this.”  
 
We contacted T.C. and, finally, in about 2001, we entered into a joint-venture deal with him to be the developer.  We would put the land into the deal, he would put the money in, and he was supposed to be the “lead” on the project and move it forward.  We turned things over to him. We thought he knew what he was doing, he was very excited about the project, and things moved forward. 
 
Stan had written a clear, simple, joint-venture agreement and T.C. agreed to it.  But, he never signed it.  As the years passed, I kept bugging Stan about this.  He, in turn, would bug T.C. about it.  T.C. would say, “Yeah, I know – I’ll sign it this weekend and get it back to you.” 
 
The big leap forward

We worked with T.C. for four years, from 2001 to 2005.  The City agreed to annex our property (all duly noted in City Council meetings over those four years), and we kept moving forward with our development plans.  But, then the City did something remarkable:  the City agreed to grant us extra-territorial water rights.
 
This was a big leap forward!  What does this mean?  It meant we now had a water source (the number one biggest issue in development), but we didn’t have to annex to get the water.  “Extra-territorial” means “outside their territory” -- they would extend water outside the city limits to our subdivision.  Please, dear reader, understand what a huge and wonderful thing this was.  We now had water from the city, but were free to develop in the county, which was the best news ever for us (as developers) and for future residents (lower taxes because they aren’t in the City). The county commissioners were much more progressive in their thinking than the City folks and they were eager to see this project move forward – and move forward fast.  (Please mentally “bookmark” this milestone, as you will see how confused people were later about these very clear facts.) 
 
We worked hard to meet the County development guidelines and the County Commissioners approved Filing 1 and Filing 2 of our plans (it was a phased development, of course, meaning you do one phase at a time and the money you earn from one phase helps pay for the infrastructure of the next).
 
Finally, we were making progress.  In fact, things seemed to be going so well that in January of 2005, we wrote a very upbeat report to our partners about all the good things that were happening, and best of all T.C. was beginning to talk about buying us out, which, at the right price, we would have eagerly done. We would be out of the project, the partners would have their return on investment, and we’d be done. We couldn’t understand why it took nine years to get to this point – it should have been simple – but at last we were ready to launch.
© Sharon Cairns Mann
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​Blog #5:  The Backstory: The Setup for Getting Snookered

7/12/2016

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Before I tell you how we got snookered into this “Bait and Switch” scheme, I have to tell you the backstory.  This starts nine years before we had ever heard of a conservation easement.
 
In 1996, Stan was living in California, and I was living in Colorado and we were dreaming of what we would do when he retired.  We decided to look for land in southern Colorado for our dream retirement home. It seemed undervalued compared to mountain terrain like Summit County, and we found the high-desert landscape of southern Colorado alluring.
 
I was the “land scout,” and I came across a parcel of land that didn’t seem suitable for our retirement home, but I couldn’t get it out of my mind. It was just outside the City of Walsenburg, in Huerfano County.  In fact, it had a contiguous border with the City (that’s significant – more later).  It was also adjacent to the Interstate (I-25), with the NE corner actually crossing the interstate.  A well-maintained county road bisected the property.  It was about 1000 acres, and It was priced at about $185,000 ($185 per acre), which seemed insanely cheap.
 
An Ideal Parcel of Land
 
I could smell it, taste it, see it:  this parcel was ideal for development. The contiguous border with the City would allow for possible annexation; the proximity to the interstate was a goldmine; the county road was perfect to augment development. And the area was under-resourced in quality affordable housing.  If one were going to design a “perfect parcel” for development, this would be it.
 
Stan had developed numerous pieces of property in the past. I called him with great excitement and described it to him.  He agreed: perfect parcel.  But, we did not personally have the money to execute on this. I can’t emphasize this enough, because the slant in the newspapers has always been about “wealthy landowners.” I can assure you, we were not rich, the rich were not abusing the system, and the rich were not the only victims – but I’m getting ahead of myself.
 
Ordinary People
 
Stan suggested that we had enough friends and family that might be interested, and that we should propose a limited partnership to them with a very small investment threshold: $2,000.  The limited partnership would buy the property, hold it for a year or so, and sell it.  Stan called it “investing in weeds.”  Alternatively, we would improve the property slightly and sell it.  To us, “improving” the property meant getting it annexed or rezoned (from agriculture to a PUD) and then selling it and a slight profit.
 
Now, if you are an ordinary person – the average middle-class American – you have frequently heard that you should invest in real estate.  But, like many, you may live paycheck to paycheck, and can only tuck a little bit away at a time.  You know that a) you will never in a million years have enough cash to just buy real estate outright – especially real estate that isn’t your own home; and b) even if you had enough to make a down payment, you couldn’t tolerate the risk of making subsequent payments on the loan while you waited for a sale, a remodel, or an increase in value.
 
But what if a trusted and experienced friend or family member comes along and says, “Hey, we’ve got this great parcel, it’s perfect for development, let’s go in together! It will only cost you $2,000.”
 
$2000 to get into a real estate deal?  Who wouldn’t do it?
 
So, Stan and I put together a limited partnership, put out a “call for funds,” and our friends and family members happily signed up. Ordinary, trusting people just like you. And, just like you, they hoped that a modest investment would reap a modest return.  
 
We were confident that even if all we did was hold it for a few years, it would increase in value, because we could see that eventually everything along the I-25 corridor from Denver to Santa Fe would be built-out and valuable. It made so much sense.
© Sharon Cairns Mann
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Post #4:  More Bait!  Federal Bait!

7/7/2016

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I previously discussed the tax treatment of a donation of a conservation easement to a land trust by the State of Colorado (a tax credit), but how does the IRS treat it?
 
IRS Treatment of a Conservation Easement Donation
 
In the simplest terms, the IRS treats a conservation easement donation like a charitable contribution:  a landowner gets a deduction (not a credit) on their federal income tax return for the donation. Additionally, you are not allowed to “sell” (transfer) your deduction to anyone else (unlike the tax credit).  So, the additional benefit to landowners doing conservation easements was a very large charitable deduction on their federal income tax return.
 
Additional Incentives
 
I’m going to jump ahead for a moment:  when we entered into the conservation easement program in 2005, our attorney explained that everyone loves it:  “the state loves it, the feds love it, the landowners love it. It’s win-win-win.” And, here’s support for that statement.
 
Not only did the State of Colorado find the conservation easement plan appealing (continually increasing the incentives), but so did the federal government.  In 2006, just when we were getting involved in the program, President Bush had signed a new bill putting exciting new incentives into the Conservation Easement Contribution provisions (HR4) by:

  • Raising the deduction a landowner can take for donating a conservation easement from 30% of their Adjusted Gross Income in any year to 50% (section 1206, page 792);
  • Extending the carryover period for the deduction from a total of six years to 16 years (section 1206, page 792);
  • Allowing qualifying farmers (people who derive more than 50% of their gross income from farming) to deduct up to 100% of their income; in this case, the land must be subject to a restriction in which the property remain agricultural or livestock production (section 1206, pages 793-794); and
  • Limiting these increased deductions to the taxable years between January 1, 2006 and December 31, 2007 (after which the deductions revert to the previous 30% and 6 year carryover, unless Congress decides to extend the period again) – (section 1206, pages 793-794).
 
As you can see, there was plenty of bait.  
© Sharon Cairns Mann

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Post #3:  The Bait

7/5/2016

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When we entered the program in 2005, a landowner who donated a conservation easement, was eligible for a tax credit on their Colorado income tax for up to $260,000 (in 2006) and up to $375,000 (in 2007).
The Incentive for Landowners to Put Land into Conservation Easements
 
So, if the State doesn’t have enough money to buy huge parcels of land from landowners at fair market value in order to preserve all the benefits listed in the previous blog for the rest of us citizens, how can they talk people into donating their land to a land trust and devaluing it?  I mean, what would it take for you to donate your valuable land and lose future profits so that I can have a pristine view? 
 
The state decided to give the landowner a tax credit instead of money for their land.  Genius!  Because as you will see below, even though this will “cost” the state by reducing revenue from taxes, it is not nearly as much as it would cost them to buy the land. 
 
What Is a Tax Credit?
 
So, what is a tax credit?  Instead of buying the land from the landowners, the State offered incentives in the form of tax credits for qualified donations of easements to qualified land trusts. A tax credit, as you probably know, is a dollar-for-dollar reduction in your tax liability.  So if you owe $200 in taxes and you have a $200 tax credit, you owe $0 in taxes resulting in $200 extra in your pocket.
 
So, in about 1999, the Colorado legislature defined conservation easement by statute ((C.R.S. § 39-21-107), along with the other legalities related to them, and set the amount of the tax credit.  When we entered the program in 2005, a landowner who donated a conservation easement, was eligible for a tax credit on their Colorado income tax for up to $260,000 (in 2006) and up to $375,000 (in 2007).  A 20-year carry-forward for the credit was also adopted, so if you couldn’t use it all in one year, you could carry it forward from year to year.
 
However, the state legislature realized that many landowners could not use such high credits (dollar for dollar) against their income tax liability.  Therefore they made a provision that the landowner could sell the tax credit to someone else in what was an unregulated market.  (To put it in perspective, to have an income tax liability of $260,000, a person would have to have taxable income of at least one million dollars.)
 
The amounts have changed since that time, but my focus in this blog is how the Great Swindle of 2005-2013 happened.  But, just to bring you up-to-date, effective January 1, 2015, tax credit certificates are issued for 75% of the first $100,000 of the donated value and 50% of any remaining amounts in excess of $100,000 up to a maximum credit of $1.5 million per donation.  (It’s interesting to note that the State keeps increasing the amounts – maybe, just maybe, they really do love the conservation easement program, even though they keep complaining about it at the same time, e.g.,"
Audit questions whether donated lands in Colorado are worth nearly $1B in tax breaks," by David Migoya, The Denver Post, 12/7/2016.)

What does all this mean?  Many landowners in Colorado are cash-poor but land-rich.  They are farmers, ranchers, or people with big dreams who own a parcel of land but are barely getting by. And, because they are cash poor, and may generate very little income in a year, they are also likely to owe very little in taxes. So, the tax credit is basically meaningless to many landowners.
 
However, the additional provision that the landowner can sell the tax credit to someone else created a whole new ball game. 
 
Selling a Tax Credit
 
Who would buy a tax credit?  The rich, of course -- those who actually have huge tax liabilities.  So, say you are rich, and you have a tax bill of $300,000 and you buy a $260,000 tax credit for $208,000 (we’ll get to the math in a bit).  You’ve just saved yourself $52,000. 
 
Why would a landowner sell a $260,000 tax credit for $208,000 (about 80 cents on the dollar). Because 1) the buyer is making money on the spread, so there has to be a discount.  (Who’s going to pay $260,000 for a $260,000 tax credit?  That makes no sense.); and 2) there are middlemen taking cuts; and 3) it’s driven by free market forces – what people are willing to pay in an unregulated market, and at the time we were involved it was about 80 cents on the dollar.  It sounds flaky, right?  Remember, this is all legal and the state set it up.
 
Even with the reduction to the landowner, getting 80% of the tax credit instead of 100% still nets the landowner $208,000 in cash in this example (theoretically -- that's not the real net, but we'll get to that later). Not bad, it seems, and he or she still owns her land and can continue to use it just as she always has, and she's done something good for the rest of us citizens of Colorado.  That’s good bait.
 
But, there’s more to the story.  Come back in a few days, and I’ll tell you the rest of the story about how landowners got swindled in Colorado. Next up?  More bait.  
© Sharon Cairns Mann

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    Hi! Welcome to this blog!   I'm a professional writer and award-winning author. I didn't really want to write this blog, but I also believe that the story of the huge conservation easement fiasco in Colorado has not yet been adequately told. So here it is!

    It's so long, I've had to serialize it, so please note that you have to START with Blog Post #1 (June 28, 2016) for the story to make sense!  So, if you're new to the blog, please go back to the beginning and start there.   

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