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Blog Post #21:  A Perfect Storm (and a Little Cussin')

10/26/2016

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“Remember,” JW cautioned, “Boetz is not your friend.”   
Knowing that we got caught in the Perfect Storm was not exactly encouraging news.  Naturally, we would have preferred smooth sailing…
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Having the IRS announce that they were going to audit 15 partners as it related to conservation easements felt like a big turning point, and we decided we needed legal advice from someone other than Todd – a new and fresh perspective.  After calling dozens of law firms and explaining our situation, I was shocked to discover that we were pariahs – no one wanted to talk to us.  “Oh – YOU,” was the response (apparently they had heard of us).  “Umm, no, that would be a conflict of interest.”  Or, “No, we don’t represent people like YOU.” Or, “That’s not the side we want to be on.”
 
Excuse my language, but, “What the f@^k!?” What did they think we had done!?  We had never done anything dishonest, we were in a pickle, and we needed an attorney.  And we couldn’t find an attorney to just TALK to us about next steps with the IRS!?
 
Finally, JW, a leading conservation easement attorney at Major Law Firm (MLF) in Denver with lots of experience practicing before the IRS and the state, agreed to talk to me and take this on in case it "escalates."
 
I told JW on the phone that Boetz seemed friendly enough and that I didn’t think this was a big deal.  “Remember,” JW cautioned, “Boetz is not your friend.”   
 
On August 5th, we send a letter to our partners explaining the above, and provided JW’s contact information at MLF as our new representation for the IRS portion of this mess. We concluded the partner letter by saying, “Naturally, we are deeply grieved by all this, but we believe we'll be victorious in the end because none of us have done anything illegal or immoral and we relied entirely on the advice of experts.”
 
My next step was to meet with JW in person at MLF in Denver, along with one of our partners who also attended the meeting on August 15, 2008.  Here are excerpts from the letter I sent to our partners afterwards, reporting on the meeting with JW:
 
“JW is very familiar with the history of this current mess from both the federal and state side of things.  He gave me a lot of historical background told me some things that are reassuring (or unnerving, depending on how you look at it).
 
  1. We didn’t do anything wrong.  We simply got caught in “The Perfect Storm.”  The Perfect Storm started forming when Senator Grassley and the federal government started cracking down on charities several years ago (after they finished cleaning up finance with the new Sarbanes-Oxley regulations) and then began looking at conservation easements.  This federal scrutiny just happened to coincide with a big up-tick in the number of conservation easements being done in Colorado.  The state was unable to monitor these, and they have never had “auditors” per se (for income tax), because they have always relied on the IRS.   So, they called in the IRS to help. 
  2. JW knows of at least 350 audits currently going on in Colorado related to conservation easements, and he’s handling at least 50 cases.
  3. The first thing the agent will do will be to collect the information (that is what is in process now). 
  4. After the data is collected, and a new appraisal is done, they will send out a notice of the “exam results.”  They will say the conservation easement has:
  • 0% value (Yes, I said “zero”!  We know that is crazy, and yes, landowners are fighting back.)
  • 25% of the value we claimed.
  • 50% of the value we claimed.
  • 75% of the value we claimed.
(NOTE:  JW said getting the letter is a SHOCK, so be prepared.

5.  I
f we don’t like the conclusions, we can appeal it
6.If we don’t like the outcome of the appeal, we can take it to federal tax court.
7.Meanwhile, JW and other attorneys have asked the state to suspend any action on “undoing” any tax credit sales until this works its way to its final conclusion. 

So, at this time, there is no “unwinding” of any tax credits and no one knows yet what happens if a person actually had to pay back the buyer of the tax credit, because so far that has not happened. 

(Note:  in our tax credit transfer agreements, we agreed to indemnify the purchaser; however, we don’t believe the state will ever get to the point where it would “undo” these things.  It would be such bad press, and years of lawsuits.  We think some other agreement would be reached.  Remember, we still have more land…)


8.It is possible that after they review the documents, we will be exonerated and the “exam” closed.

9.If we get a 75% valuation (which, according to JW, would be considered “good” given that they haven’t handed out any 100%s that he knows of), most of our easement appraisals will still be over the required threshold of $500,000! 

10.If anything comes in under the $500,000 threshold, we will appeal it.  JW says that he has gotten the IRS to concede on several cases after an appeal.

11.The IRS has flooded itself, and the appeals process is extremely bogged down – getting strained to the breaking point, so this will be a very slow process.  We believe that as they realize what a mess they have created for themselves, they may start to concede more cases.

12.Please help us watch for a decision in the “Hughes” case from tax court circuit judge Bob Wherry, who came to Denver last fall to hear the first of these cases in which the IRS said that the value was “zero.”  This will be a landmark decision because it will be one of the “firsts” and will begin to influence the process – they expect the decision to come out in September.  While there is no decision, Wherry apparently indicated by his demeanor in the courtroom that the concept that the IRS was putting forth – that the land was worth “zero” – was nonsense.  You can use the search function at the following link to keep an eye out for this decision:  http://www.ustaxcourt.gov/UstcInOp/asp/HistoricOptions.asp
​

13.Even though we have done separate parcels and separate donations, JW will handle this as a “consolidated” case and he indicated that Boetz is already treating it as a consolidated case just by asking us (Stan and Sharon) to supply documents on behalf of the individual partners.  JW won’t really get involved until we’ve received our “exam results” notice.  He expects that will be about November. 

14.Pep Talk:  JW says this takes “fortitude,” so hang in there!”
 
As you can see, knowing that we got caught in the Perfect Storm was not exactly encouraging news.  Naturally, we would have preferred smooth sailing…

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Blog Post #20:  The IRS Mess

10/19/2016

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I suddenly knew that all our optimism had been for naught and that things were going to turn out very badly for us.  
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As you remember from Blog Post #18, on the advice of our attorney, we decided to just “ride out” the media uproar occurring at the end of 2007.  The first months of 2008 were calm – no more alarming stories, no investigation, no subpoenas.  It seemed just exactly as our attorney had predicted:  it will blow over.
 
But would it?  We were depressed and discouraged and, frankly, exhausted.  We had started the partnership in 1996 thinking we would just turn around and sell it quickly for a small profit.  Here we were 12 years later, and Stan and I were working constantly on spreadsheets and taxes and C.E. paperwork. 

In addition, we saw we saw articles such as the attached, which made us wonder what was really going on.  (“Nonprofit pays off in easements: State has subpoenaed records in probe into possible abuses,” [See link below to reach a copy of the article in .pdf.])  We read these types of articles with wonder, because it didn’t compute with the person we thought Todd was…and, as naïve as we may have been, 1) by this time we had already done 15 conservation easements – we couldn’t exactly undo them, and 2) we still couldn’t fathom how this related to our easements.  Whatever the accusations in the article were about the Noah Land Trust, it didn’t seem related to the reality we had experienced with them, with formal documents, and so on.  And, as I write this today in August of 2016, I don’t believe Noah Land Trust has ever been “undone.”But, you can understand why we began to think that even though we had spent considerable sums of money developing another set of conservation easements for 2007, we needed to stop pursuing them as an option and move on.  But what about the rest of the land?

For Sale
 
In our exhaustion, we decided to just “fire sale” the land, unload it for a low price, and be done with it all.
 
On May 21, 2008, we contacted Todd’s office and told them we would be by to pick up all our documents because we were going to sell the land and not do any more conservation easements. On May 26, we notified the partners that we were going to list the land with Fuller Western and we gave the partners a week to let us know if any of them wanted to buy it.  
 
Just as a reminder, we had about 1000 acres and about half of that (15 parcels) had been put into conservation easements.  So, about half of it was not developable, which means that we had lost any economies of scale in doing a subdivision.  We could not make enough money on the first half of a subdivision (that’s where all the expenses would go), without the second half (the stuff we had put into C.E.’s) to catch up on the cost of putting in the infrastructure and finally turning a profit.
 
I don’t know if we were thinking straight or not, but we listed the land June 3, 2008, and notified Todd and our CPA.
 
Another Plot Twist
 
But listing the land didn’t solve any problems.  I was contacted by an IRS Agent named John Boetz.  He made an appointment for July 21, 2008, and showed up at our house. He sat in our living room and pulled out newspaper articles in which he had used a yellow highlighter to underline the claims of fraud and abuse.  “Wait,” I said. “Do you mean to tell me that the IRS relies on false information printed in newspapers as facts on which you act?”  He looked a little pained, but shrugged. 
 
Sheeeesh.  I thought the government was more sophisticated than that.  I mean, if they were going to investigate us, I thought they would have real data as a basis for their investigation.  Real numbers.  But, nooooo – just misinformation from newspaper.
 
He informed me that the IRS was auditing two of our partners as it related to the conservation easements. He indicated that he was only interested in these two as a "sampling," and was focused on the valuation in the appraisals on the conservation easements. According to the agent, the IRS's method of operation was to turn these cases over to outside appraisers with whom they had contracted rather than IRS appraisers -- because the IRS appraisers were on overload, looking at so many conservation easements in Colorado. 
 
He was most interested in Tract 10 – the same appraisal that had been under scrutiny in the O’Gorman case -- as well as Tract 4.
 
This felt uncomfortable, but naturally there was nothing we could do but comply.  So, we supplied the documents he requested and waited.  I was still sure everything would turn out okay.     
 
Then I received a phone call from Boetz on August 4, 2008.  I can remember exactly where I was in my car -- at a specific intersection -- when he told me on the phone that he was going to audit all 15 conservation easements.  He claimed that the appraiser that they contracted with wanted the information from all the conservation easements we had done.  I remember pulling over and moaning out loud. I think I said something incredibly naive like, “Oh, John, how can you do this to us?”  A pretty stupid thing to say to an IRS Agent, I guess, but somehow I thought they were humans. I also remember the moment because it felt like the saga took a really bad turn for the worse and I suddenly knew that all our optimism had been for naught and that things were going to turn out very badly for us. 
 
The IRS Mess
 
So, in order to get all the information on all the conservation easements we had done, the IRS had to send all of our partners (who were considered the “donors of the conservation easements”) a notice that they were being audited as it related to the conservation easement.
 
Boetz assured me that the partners would get a notice, but it was only a formality.  The way we understood it, the IRS was not at all interested in the partners’ personal tax returns.  They were only sending notices to partners so that it would allow us (Stan and I, as managers of the partnership) to turn over the documents that they were requesting – the appraisals, baseline reports, transfer agreements, etc.
 
We believed that we had all the documents the IRS needed and that partners did not have to provide anything except permission to us to provide information to the IRS on their behalf.
 
But, it was sickening to think of all our partners receiving all those awful notices.
 
We took the land off the market.  While the titled was not legally “clouded,” who would buy it while we were embroiled in all this mess?  So, that option went down the drain for us.
©Sharon Cairns Mann

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Bloh Post #19:  Who Are They Talking About?

10/12/2016

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Doesn’t it seem weird to you that people are talking about subpoenas and investigations, and naming us (and the land trust) in newspaper articles – and yet no one had ever called us?  We had never received any communication from the state, but we were presumably being investigated? 
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​Blog Post #19:  Who Are they talking about?
 
Or
are they talking about us?  On December 8, 2007, just three days after learning that our attorney could not sell the tax credits, this article appeared in the Pueblo Chieftain:  Easements probe includes cases for Huerfano County. “At least 15 conservation easements involving more than 500 acres in Huerfano County are included in a statewide probe into possible misuse of the state's easement program.” 
 
Hmmm, we had done 15 easements involving about 500 acres in Huerfano County, so it sure sounded like us. But the article mysteriously says, “The state's Division of Real Estate has issued 30 subpoenas to property owners and land trusts around the state - primarily in the Denver-Fort Collins area -
but none have been served to anyone in Southern Colorado.” So, who are they talking about?
 
Then the newspaper article goes on to name me personally: “One of the tracts is owned by Sharon Cairns Mann, and seven others are owned by limited liability companies with such names as Tract 19 LLC. All of those list their legal address as Savant Publishing Inc., 300 County Road 330, in Walsenburg, of which Mann is president.  Additionally, Stanley K. Mann is listed as the attorney-in-fact on three other easements. Neither Mann could be reached for comment.”  It would be hard to comment, since we were never contacted – we didn’t even know about this article until much later.
 
In addition, the same article names the land trust (Noah Land Trust) to which we donated the land.  “Paul Greer, president of the trust that holds the Huerfano easements, said his non-profit trust, which began as a mentoring program for juveniles, has been caught in the middle of an investigation he knows little about….Greer said not only does his trust have nothing to do with hiring appraisers, but it doesn't receive any tax credits, both of which are the focus of the state probe.”  (
By the way, his name is Paul Geer, not Greer – see what I mean about endless factual errors!?)
 
Weird Reporting – or Just Lazy?
 
Doesn’t it seem weird to you that people are talking about subpoenas and investigations, and naming us (and the land trust) in newspaper articles – and yet no one had
ever called us?  We had never received any communication from the state, but we were presumably being investigated?  There is an implication that we had been the subject of a probe.  Let me make it clear right now:  at that time, we had never been contacted or investigated by the state,  and we were never subpoenaed -- although the plot of this story thickens and everything gets much more complicated!
 
So, we entered 2008 with the simple decision to take our attorney’s advice and wait it out.  We were confident that
if there were abusers of the C.E. program (somehow we doubted it), it would get sorted out.   © Sharon Cairns Mann

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Blog Post #18:  The Avalanche of Articles

10/5/2016

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Why is it that when someone says, “Don’t worry,” we worry more? 
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We carried on through the fall of 2007 with our plans to do six-to-nine C.E.’s for 2007.  We did a considerable amount of work at the same astronomical expense as the other easements, and again felt money draining out of our bank account to make this happen. But, we felt we would still be ahead and that we had an obligation to our partners to continue with this process so that we could get them a good return on their investment and close down the partnership knowing we had done something good for the environment.
 
Uneasy
 
I began to feel a little uneasy about the situation because of the extreme animosity I had sensed at Julie’s hearing, especially directed at our attorney Todd by the State’s people.  The tone of voice when questions were asked, the insinuations, all indicated that the State’s counsel thought we, and especially Todd, were scum bags. I knew we had scrupulously followed the law, so I was having a hard time reconciling all this conflicting data, but, on paper, and in the law, everything looked fine. 
 
Just to be cautious, both Stan and I went to see Todd to quiz him about the program again.  He was as upbeat and enthusiastic as ever, and as a result of our meeting with him, Stan wanted to do even more C.E.’s if possible – to accelerate the number of donations if possible.  Here’s an excerpt from a letter to our partners dated 9.17.2007 that explains why:
 
“After consulting with our attorney, we want to assure you that conditions remain positive, and, in fact, we have decided that it would benefit all the partners to proceed with attempting to donate as many tracts as we can this year – possibly finishing the project. 
 
According to Todd, the market for tax credits is very strong and Todd has ‘no doubt’ that he can place all that we have available.  We pressed Todd very hard about any downside and he sees none.  He re-investigated all the legal ramifications of these transactions this summer and feels confident that everything we are doing is proper and correct.
 
In addition, as we communicated previously, both federal and state laws have been enacted which provide even more beneficial treatment for these transactions than we were receiving. 
 
Result?  The combination of the strong market and sympathetic laws makes us believe it is prudent to do as many as possible while these favorable conditions exist.”
 
My gut told me not to move forward with more C.E.’s, and I tried to convince Stan not to do so.  But, how do you explain a gut instinct when there was nothing specific to point to?  We were divided:  I felt we had an obligation to our partners to not cause any damage, even though none had been caused so far except for delays.  Stan felt we had an obligation to our partners to press forward (as described in the letter above) and maximize their return on investment. 
 
So, we proceeded and bled money all fall trying to establish nine new conservation easements and to get all the paperwork ready to donate them before the end of the year.

The Shocking Phone Call

Then, on December 5, 2007, I received a shocking phone call from Todd.  He abruptly informed me that he would not be able to sell any of the tax credits (clearly a complete reversal of what he had told us in September).  He told me a series of wicked newspaper articles had been published about the conservation easement program, and all the tax credit buyers were too nervous. (It’s important to note that we lived in the boonies in southern CO, and did not receive a newspaper, did not get Denver news on TV, and were not highly connected on social media in 2007, so we had not seen any of these articles.)

We had worked so hard to create these new conservation easements, and spent so much money, and now it was unraveling. I couldn’t believe my ears.  “Don’t worry,” Todd assured me.  “This will blow over and all the work we did won’t be lost.  We’ll just donate them next year when all this dies down.”  He then sent me all the attached newspaper articles to support what he was saying to me.  Why is it that when someone says, “Don’t worry,” we worry more?

Avalanche of Articles
 
Here’s a quick summary of the articles, most of which contain vast amounts of factual errors and misinformation. This constant misinformation is what has prompted me to write this blog as my way of “setting the record straight.” I hope many other landowners will chime in to support what I say. And, if you’ll hang in there with me in this blog, you’ll discover that even the newspaper reporters eventually changed their tone and stories.
 
On November 4, 2007, The Denver Post reported “Ranchers rush to secure conservation easements.” This article mentions the increased state and federal benefits, with no hint at a problem.
 
On November 10, 2007, The Denver Post reported, “Ranch easements culled.” “The conservation easements ranchers use to cut taxes and protect land are being scrutinized by the Colorado Division of Real Estate, Colorado Department of Revenue and the Internal Revenue Service because of allegedly inflated appraisals.”  (Reminder, we were constantly baffled by the accusations of “inflated” appraisals throughout this ordeal, since we would have made so much more money if we had continued the development than was actually stated in the appraisal.  Honestly, all these years later, we’re still baffled.)

Then, on November 20, The Denver Post reported that “Subpoenas put conservation easement program ‘in jeopardy’.” The article goes on to say, “The Department of Regulatory Agencies has issued 30 subpoenas as part of a statewide investigation into Colorado's conservation-easement program. Issued over the past two days, the subpoenas will be used to gain information about appraisals that may have been overvalued and sales of unregulated securities.  ‘This could place the entire conservation-easement program in jeopardy,’ said Rico Munn, DORA's executive director. ‘Coloradans value this program, and we hope to save this program.’”

The Cortez Journal, via the AP reported “Subpoenas issued in probe allege abuse of conservation easements.”  Much to our relief, it also said, “Landowners themselves are not the targets. Many farmers and ranchers don't make enough to even claim the credits.” (To see this article, download the .pdf below.)

On November 24, 2007, the Denver Post wrote “Easement deals lead to inquiry.” “A state investigation into possible abuses of the conservation easement program is focusing on deals involving five ranches and an Arvada land trust…. Documents obtained by The Denver Post show the investigation involves transactions in which Noah Land Conservation, based in Arvada, and Denver tax attorney Rodney Atherton were participants. Of the five ranches, two are in Adams County, and the other three are in Arapahoe, Elbert and Huerfano counties.”

On November 29, 2007, the Denver Post reported, “IRS finds a third of easements in probe are faulty.”
 
As you can see, this thing unraveled from everything being peachy on November 4, 2007 to subpoenas being issued by the State on November 20, 2007, to the whole thing being catapulted to the federal level by the IRS “finding fault” on November 29, 2007. 
 
And, we didn’t know anything about it.  But, as we reviewed the articles, we felt relieved.  They weren’t talking about us.  We were 100% confident our appraisals were not inflated.  © Sharon Cairns Mann.



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    Author

    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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