(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
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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