When we got the IRS appraisals back from IRS they were filled with mistakes, misstatements of fact, and a complete non-recognition of the notion of “highest and best use.”
In late July of 2009, the same two partners who were being “audited” by the IRS received notices from the State of Colorado Department of Revenue that “additional documentation is needed to support your gross conservation easement credit.” The State specifically asked for two things: 1) a copy of the appraisal and 2) a copy of the deed transferring the easement to a qualifying organization. Easy peasy! We could do that. But, naturally, we weren’t feeling too great about our first official notification from the state, which created a double whammy of both the State and IRS going after our two partners.
At about the same time, we finally received news about the IRS appraisals. I guess we shouldn’t have been surprised: when we got them back from Walters they were filled with mistakes, misstatements of fact, and a complete non-recognition of the notion of “highest and best use.” In addition, Walters, like the previous State investigators in Julie’s case, had not bothered to call the County planning officer to verify the facts. (I’m getting a little bit ahead of myself in the timeline here, but the following year, on October 27, 2010, Stan wrote to one of our attorney partners and said, “Found out this morning that the IRS appraisers in our cases were part of the good-old-boy clique that did conservation easement appraisals early and resented the late comers in their respective territories of the state.” I can’t remember how Stan found that out, but as I continue to write and research this blog, I may be able to fill you in. I can tell you this: Stan doesn’t make up that kind of stuff, and in fact this good-old-boy theory was later expanded on by landowners and illuminated by journalists – see Blog #35 for more details.)
Back to the receipt of the appraisals in 2009. I can’t find the exact date when we received the Walters’ IRS appraisal, or even a copy of it, but on August 14, 2009 I wrote to the partners telling them that the “re-appraisal” by the IRS was not good news and that they were going to begin getting some kind of notification from the IRS.
On August 17, 2009, Stan wrote a long critique of the appraisal to JW at MLF, disputing Walters’ claims and pointing out all the factual errors. I was tempted to print it here, but it is very lengthy and technical. I doubt you’ll actually want to read it, but just to be transparent and supply you with all the facts, I’ve included it below as a .pdf. (Note that I highlighted some [not all] of the factual errors that he made, but you can read it for yourself and see what a disaster it was.)
On August 20, 2009, Stan and I went to visit JW at MLF in Denver with the two partners who were being pursued by both the state and IRS.
As a follow-up to that meeting, Stan, wrote a letter to the partners on August 23 saying, “So far, two of our partners (owner/contributors of three of the conservation easements) have received notices from the IRS disallowing the claimed contribution. So far, the State of Colorado has made no claims, but has requested hundreds of pages of documents which we have supplied. The information upon which the IRS is relying is almost entirely false.”
Here are some other excerpts from our letter to our partners describing what we learned from JW, which was remarkably similar to the letter we had sent to them the previous August.
I think it is interesting, as I read back over these documents, to see how this disaster went from the early days of a “probe” in 2007 to hundreds of landowners being affected by 2009. The storm seemed be growing, and riding it out was beginning to feel impossible. But, we had great representation from JW at Major Law Firm in Denver. What else could we do? ©Sharon Cairns Mann
At about the same time, we finally received news about the IRS appraisals. I guess we shouldn’t have been surprised: when we got them back from Walters they were filled with mistakes, misstatements of fact, and a complete non-recognition of the notion of “highest and best use.” In addition, Walters, like the previous State investigators in Julie’s case, had not bothered to call the County planning officer to verify the facts. (I’m getting a little bit ahead of myself in the timeline here, but the following year, on October 27, 2010, Stan wrote to one of our attorney partners and said, “Found out this morning that the IRS appraisers in our cases were part of the good-old-boy clique that did conservation easement appraisals early and resented the late comers in their respective territories of the state.” I can’t remember how Stan found that out, but as I continue to write and research this blog, I may be able to fill you in. I can tell you this: Stan doesn’t make up that kind of stuff, and in fact this good-old-boy theory was later expanded on by landowners and illuminated by journalists – see Blog #35 for more details.)
Back to the receipt of the appraisals in 2009. I can’t find the exact date when we received the Walters’ IRS appraisal, or even a copy of it, but on August 14, 2009 I wrote to the partners telling them that the “re-appraisal” by the IRS was not good news and that they were going to begin getting some kind of notification from the IRS.
On August 17, 2009, Stan wrote a long critique of the appraisal to JW at MLF, disputing Walters’ claims and pointing out all the factual errors. I was tempted to print it here, but it is very lengthy and technical. I doubt you’ll actually want to read it, but just to be transparent and supply you with all the facts, I’ve included it below as a .pdf. (Note that I highlighted some [not all] of the factual errors that he made, but you can read it for yourself and see what a disaster it was.)
On August 20, 2009, Stan and I went to visit JW at MLF in Denver with the two partners who were being pursued by both the state and IRS.
As a follow-up to that meeting, Stan, wrote a letter to the partners on August 23 saying, “So far, two of our partners (owner/contributors of three of the conservation easements) have received notices from the IRS disallowing the claimed contribution. So far, the State of Colorado has made no claims, but has requested hundreds of pages of documents which we have supplied. The information upon which the IRS is relying is almost entirely false.”
Here are some other excerpts from our letter to our partners describing what we learned from JW, which was remarkably similar to the letter we had sent to them the previous August.
- Literally hundreds of such notices have been sent to Colorado donors already, so we are way down the line in order, which is to our benefit.
- JW is already handling 100 of these cases, so he is very familiar with what is happening.
- Among the choices we have when receiving notice from the IRS, this lawyer believes the best is to do nothing and wait for a 90-day statutory notice that will follow the original notice.
- At that time we will have the choice of either (a) filing a protest (individually or consolidated), or (b) filing a case with the United States Tax Court.
- One very favorable case (Hughes v. Director of Internal Revenue decided by Judge Wherry) has already been completed in the Tax Court, and others may follow by the time we have to make the decision between (a) and (b) above. (This case is described in more detail in Blog Post #23: “There May Be Some Cussin” along with a link to a Denver Post article.)
- JW will make that final decision at that time.
- In the meantime, Colorado has not sent many deficiency notices. So, partner donors may or may not get deficiency notices from Colorado. If we do, our lawyer will follow Colorado Tax Procedure Conservation Easement Credit Disallowance Hearings procedure, and act in behalf of each said partner.
- Our lawyer advised us that there are so many cases that the Colorado legislature may very likely consider some sort of global settlement approach that will avoid undoing the tax-credit sales. Literally hundreds of well-to-do citizens are already protesting to the legislature and the Revenue Department to preserve what they (and we) have already done.
- Because we are so far down the line in order, and because we may want to consolidate all our cases, it will likely be a very long time before we are actually scheduled for hearings or trials. Because we are so far down the line, some pattern of settlement or outcome is likely to develop before we have to do anything other than file our protest or our suit.
- Our lawyer does not want to be locked to a particular position until he can see how the earlier matters are being resolved.
- This thing will end, but not soon.
I think it is interesting, as I read back over these documents, to see how this disaster went from the early days of a “probe” in 2007 to hundreds of landowners being affected by 2009. The storm seemed be growing, and riding it out was beginning to feel impossible. But, we had great representation from JW at Major Law Firm in Denver. What else could we do? ©Sharon Cairns Mann
| appraisalcritique.walters.pdf |
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