Judge Wherry slapped down the IRS for using an “engineer” instead of a qualified appraiser, and Wherry also valued the land at $2.0 million instead of $238,135 – almost 10 times when the IRS appraiser claimed!!
The Hughes/Wherry decision that JW had told us to watch for finally came out in May 2009. Here's a link to the May 12, 2009, article in the Denver Post, “Ruling puts value on land contribution.”
The article describes one of the first cases in the avalanche that was to follow. “In a case that has been closely monitored by the conservation-easement community nationwide, U.S. Tax Court Judge Robert Wherry, Jr., determined that the original appraisal overvalued the 2413 acres Hughes donated to the land trust.” This was actually a bad news/good news ruling. While it appeared that Hughes “lost” (he was ordered to pay taxes to the IRS), at least Wherry appreciated the fact that the land had value. Here’s a summary:
The judge ruled that Hughes owed the IRS $437,154 in taxes. Dear Reader, on the surface, without knowing hardly anything about conservation easements, you can see why this is unfair. The man did exactly what the law said he could do. He donated his land to the Black Canyon Regional Land Trust, Inc. He presumably received a tax credit for it from the State of Colorado, although that part is not addressed in the article. And, he claimed the donation as a charitable contribution on his tax return (totally legitimate) valued at $3.1 million. Dear Reader, that is only $1284 per acre. How much is YOUR land worth!? Way more than that, I suspect!
And yet, the case hinged on the fact that the government “engineer” (not a qualified appraiser, mind you), valued the total conservation easement between zero and $238,135. Excuse my bad language, but &$*#&*!! How would you feel if you gave your valuable land away, and then, AFTER THE FACT – WHEN YOU CANNOT UNDO THE EASMENT – you are told that your land is worth ZERO!!??? More expletives.
How is it possible that any piece of land is worth “ZERO”? And even at the high end of the engineer’s valuation ($238,135 for 2413 acres), do you know any land in Colorado that is truly worth only $98 per acre? There may be pockets and places where that is currently true, but it does not take into consideration the “highest and best use” rule (see Blog Post #23 for a fuller description of “highest and best use”) and the fact that the current owner is giving up his or her rights for future development (profits) forever – meaning the current owner, and his or her children and grandchildren. Forever is a long time, folks! The application of “highest and best use” valuation method is intended to take that “future vision” into account.
I’m sorry if it seems like I’m screaming – I guess I’m still screaming on the inside over the moron who valued the land (2413 acres) at “somewhere between $0.00 and $238,135.”
But, it is important to note, the conservation easement community considered it a victory in that Judge Wherry slapped down the IRS for using an “engineer” instead of a qualified appraiser, and Wherry also valued the land at $2.0 million instead of $238,135 – almost 10 times when the IRS appraiser claimed!! In other words, Wherry rejected the IRS’s strategy of having a “Zero” valuation tier. Still, the $2.0 million was a reduction from the $3.1 million that Hughes had claimed, and thus the need to pay back taxes.
The article says, “’This decision is very helpful for landowners with legitimate conservation easements that are being challenged by the IRS,’ said Bill Silberstein, an attorney with Isaacson Rosebaum PC who has several similar cases.” (And, just to be a little gossipy, was one of the guys who turned me down when I asked him to represent us. Maybe he had a conflict of interest.)
Meanwhile, we were still waiting for news on the IRS appraisals of our land. But, hopefully they now realized that it couldn’t be the ridiculous sum of “zero.” ©Sharon Cairns Mann
The article describes one of the first cases in the avalanche that was to follow. “In a case that has been closely monitored by the conservation-easement community nationwide, U.S. Tax Court Judge Robert Wherry, Jr., determined that the original appraisal overvalued the 2413 acres Hughes donated to the land trust.” This was actually a bad news/good news ruling. While it appeared that Hughes “lost” (he was ordered to pay taxes to the IRS), at least Wherry appreciated the fact that the land had value. Here’s a summary:
The judge ruled that Hughes owed the IRS $437,154 in taxes. Dear Reader, on the surface, without knowing hardly anything about conservation easements, you can see why this is unfair. The man did exactly what the law said he could do. He donated his land to the Black Canyon Regional Land Trust, Inc. He presumably received a tax credit for it from the State of Colorado, although that part is not addressed in the article. And, he claimed the donation as a charitable contribution on his tax return (totally legitimate) valued at $3.1 million. Dear Reader, that is only $1284 per acre. How much is YOUR land worth!? Way more than that, I suspect!
And yet, the case hinged on the fact that the government “engineer” (not a qualified appraiser, mind you), valued the total conservation easement between zero and $238,135. Excuse my bad language, but &$*#&*!! How would you feel if you gave your valuable land away, and then, AFTER THE FACT – WHEN YOU CANNOT UNDO THE EASMENT – you are told that your land is worth ZERO!!??? More expletives.
How is it possible that any piece of land is worth “ZERO”? And even at the high end of the engineer’s valuation ($238,135 for 2413 acres), do you know any land in Colorado that is truly worth only $98 per acre? There may be pockets and places where that is currently true, but it does not take into consideration the “highest and best use” rule (see Blog Post #23 for a fuller description of “highest and best use”) and the fact that the current owner is giving up his or her rights for future development (profits) forever – meaning the current owner, and his or her children and grandchildren. Forever is a long time, folks! The application of “highest and best use” valuation method is intended to take that “future vision” into account.
I’m sorry if it seems like I’m screaming – I guess I’m still screaming on the inside over the moron who valued the land (2413 acres) at “somewhere between $0.00 and $238,135.”
But, it is important to note, the conservation easement community considered it a victory in that Judge Wherry slapped down the IRS for using an “engineer” instead of a qualified appraiser, and Wherry also valued the land at $2.0 million instead of $238,135 – almost 10 times when the IRS appraiser claimed!! In other words, Wherry rejected the IRS’s strategy of having a “Zero” valuation tier. Still, the $2.0 million was a reduction from the $3.1 million that Hughes had claimed, and thus the need to pay back taxes.
The article says, “’This decision is very helpful for landowners with legitimate conservation easements that are being challenged by the IRS,’ said Bill Silberstein, an attorney with Isaacson Rosebaum PC who has several similar cases.” (And, just to be a little gossipy, was one of the guys who turned me down when I asked him to represent us. Maybe he had a conflict of interest.)
Meanwhile, we were still waiting for news on the IRS appraisals of our land. But, hopefully they now realized that it couldn’t be the ridiculous sum of “zero.” ©Sharon Cairns Mann
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