“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…
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).
- 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.
- JW knows of at least 350 audits currently going on in Colorado related to conservation easements, and he’s handling at least 50 cases.
- The first thing the agent will do will be to collect the information (that is what is in process now).
- 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.
5. If 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…