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Blog Post #31:  A Benediction for the Unthinkable

12/21/2016

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One sleepless, anxiety filled night, I cried out to God and asked that question: “How am I going to make it through this?  I need your help!  DO SOMETHING!”  And the answer came, just as if God spoke: “I don’t need to do anything. Everything you need and everything you want is already inside of you.” What an interesting message, I thought. What is already inside me?
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In the early morning hours of January 20, 2011, the unthinkable happened.  My phone rang at 5:30 a.m.  I was already up; nonetheless, an early morning phone call is not a good sign.  I was in Denver, three hours away from our home in Walsenburg.  Caller I.D. showed the call was from my husband. I answered and my heart caught in my throat: he was crying.  He could hardly talk.  He finally managed to say, “We’ve had a fire.”  He provided sketchy details; nothing made sense. I could only grasp a few things: 1:00 a.m., explosion, flames inside, fire department, extensive damage.  He was okay, just exhausted.  I called my boss, canceled all plans for the day, jumped in the car, and drove into a murky new future.
 
“The Worst Day of our Lives,” I wrote in my journal.  We had painstakingly designed and lovingly worked on this large facility – a combination dream home and conference/retreat center – for 13 years.  It was completely custom, and, not having enough money to have it built, we eked out the cash for supplies from our meager monthly income and did everything ourselves, by hand. It had been back-breaking work, with real blood, sweat, and tears poured into it.  Lost? Destroyed? How could this be?  This was God’s project, we thought.  We had committed the whole process and the outcome to God, believing and hoping we were creating a sanctuary for others, a place of peace, healing, and restoration.
 
A gas explosion?  That’s something that happens to “other” people, not to you – not to me!  It’s something freaky you see on T.V.  How could such a thing happen? We learned later that a worker had pierced a gas line (propane) with a nail (which means the nail pierced the protective steel casing), but he didn’t know he had hit the line.  No one did.  And, so, the gas leaked, filling the interior walls until it finally reached a pilot light in a gas fireplace in the wall and blew up.  Thankfully, the worker was long gone, Stan was asleep in the room farthest away from the explosion, and I was out of town.  The good news was just that:  no one was hurt.  The bad news was that explosion tore open the wall and roof, the roof was caving in, and the fire had raced through most of the interior walls.  We were going to have to gut the place and start over.
 
How could this happen when we were already maxed out emotionally – already up to our eyeballs in the paperwork and monumental stress of all the mess of the problems with the conservation easements?
 
The following days and weeks were a blur of unfamiliar activities.  No one gives you a manual for what to do if your house blows up.  Where do you start?  What do you do?  Immediately after the fire, we wandered through the ashes and debris staring.  It was simply overwhelming. We couldn’t find essentials: car keys, check books, and worst of all, the documents pertinent to the lawsuits.  We needed a place to stay.  The questions and the anxiety were overwhelming.  I started throwing up. 
 
After the insurance company hired mitigation and construction crews, reality hit me:  this wasn’t going to be fixed overnight.  We had months and months, maybe years -- even with the insurance paying for crews – before anything would be back to “normal.”  It was an unholy mess, chaos beyond imagination.  The burning of the Icynene™ insulation resulted in a massively toxic cloud and residue everywhere, and we were not allowed in the falling-down building. 
 
We were displaced.  We had no choice but to physically relocate to the tiny loft we owned in Denver.  We didn’t take anything because any stuff that hadn’t burned up was toxic and had to be discarded.
 
Between the lawsuits and the construction project, there were too many details for my poor brain to handle.  Even though the construction crew would take over the building task, I had to answer a million questions a day.  There are no words to describe the depression, despair, and exhaustion I was experiencing. 
 
My mental health was getting a little wobbly.  I never cried after the fire.  I was afraid if I started to cry, I would never stop and they might have to hospitalize me. I was afraid I would start to scream and never be able to stop, and so I kept quiet.  To me it looked like I was facing a huge mountain of manure that had to be moved, and I only had a very tiny toy teaspoon.  That’s what it felt like every day – a big mess and no way to even make a dent on it.  My emotions were getting more and more fragile, more raggedy.  How was I going to make it through? 
 
One sleepless, anxiety filled night, I cried out to God and asked him that question:  “How am I going to make it through this?  I need your help!  DO SOMETHING!”  And the answer came, just as if God spoke:  “I don’t need to do anything.  Everything you need and everything you want is already inside of you.” 
 
What an interesting message, I thought. What is already inside me?  I remembered my favorite benediction that simply lists the graces we receive: “You, Child of a most loving and merciful God, Have been blessed by the Baptismal Font, This Community, The Bread and Wine, The Holy Scriptures, and The Grace of our Lord, Jesus Christ.”  Well, what more could one ask for?
 
I realized that throughout my life I had accumulated a deep well of “good stuff” inside of me in addition to the graces listed above: a treasure trove of scripture that I had memorized; happy memories; good values; inspiring sermons; positive stories; and the love of family and friends.  I began to imagine taking big buckets and dipping them deep into this abundance that I had been storing up in my heart, mind, and soul over my lifetime.  In the midst of crisis, I dipped those buckets deep into all the “good stuff” that had accumulated in my well, and pulled up bucket loads of grace, peace, strength and courage.  The only sane thing to do was to drink from the wealth of my well, face the problem courageously, be bigger than the problem, and soldier on.
 
Thus, the post-fire days were transformed from the worst days of my life to just-enough-grace days as I faced down the temptation to be angry and feel sorry for myself. I became keenly aware that there was no point in caving in:  we still had to deal with the wreckage, whether we wanted to or not.  And, our loss, no matter how huge, was small compared to what others go through. 
 
Was I exhausted?  Yes.  Disappointed?  Yes.  But I was thrilled to discover the depth of the well inside of me, and the contents that sustained me.  Encountering that abundance and plumbing the depths of that well changed the complexion of those days.  Please don’t misunderstand.  Those were neither fun nor pleasant days.  They were exhausting and unpleasant, but they were filled to the brim with the surprise of the grace of “getting through.”   
 
The murky new future I had driven into was just one more chapter in the story of my life -- the chapter in which my mettle was tested and God gave me what I needed.  He didn’t rescue me from what I had to face, but he had stored “everything I wanted and everything I needed” inside of me.  May you never have to dip into that well, but when you do, may you find it filled with God’s grace and peace, ready for you to guzzle in your time of need.
©Sharon Cairns Mann


You, Child of a most loving and merciful God,
Have been blessed by the
Baptismal Font,
This Community,
The Bread and Wine,
The Holy Scriptures, and
The Grace of our Lord, Jesus Christ.
 
May the love you have heard about, participated in, and been freely given, shine in you and from you into the world.  Go forth in peace my brothers and sisters.  Go forth in Peace. 
 
Amen
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Blog Post #30:  The Smoking Gun

12/20/2016

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This nasty development meant we finally had the “smoking gun” – we had defined Todd’s negligence and it was costing us everything with the IRS.
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Stan drafts malpractice case.
 
Stan was seriously concerned about A&J’s failure to move forward with the malpractice case in a timely way, so -- in the essence of time and to keep things moving -- Stan, along with two partners, started drafting a complaint against Todd.  As mentioned in the previous post, we still didn’t know exactly what he had done wrong, nor did we have an exact amount on our damages, but we were worried about the statute of limitations and Stan felt that if he drafted the complaint himself, it might get A&J off the dime to at least file the complaint, even if they didn’t pursue it.
 
By the end of 2010, we parted ways with A&J on the malpractice portion of our cases (they kept the IRS portion) because they just did not want to take it on.  We switched to representation by Springer and Steiner for the malpractice case, going through the same tedious steps of getting all our partners notified and having them sign the engagement letter. 
 
Settlement Talks Break Down
 
Meanwhile, our settlement talks with the IRS (handled by A&J) broke down, and it boiled down to the fact that the Noah Land Trust (to whom we had donated the Conservation Easements) had not sent us Contemporaneous Written Acknowledgements (CWAs) (otherwise just known as “donor receipts,”) for the Conservation Easement donations we had made.  We had stacks and stacks of paperwork for every single donation to prove that we had done it – there was no doubt that we had made these donations.  But the IRS was sticking to this bit of minutia, in spite of all our evidence that we had made the donation.
 
In fact, Paul Geer, the Executive Director Noah Land Trust, insisted he had sent them, he would send an affidavit to that effect, and would send new ones – none of which the IRS found acceptable.  (And, we know that Noah Land Trust had not sent them, as 1) our record keeping was impeccable and 2) it was the one single document missing for every single donation.)  So, lacking this single piece of paper meant we were screwed.  Totally, royally screwed. 
 
As a result, A&J came to an agreement with the IRS wherein we would basically have to pay about 99% of what they said we owed.  The settlement granted us a 1% discount, or some such nonsense.  We were outraged with the IRS and we were outraged with A&J – after spending a year working with them and tens of thousands of dollars in fees, they had garnered us a 1% discount.  Big deal!
 
The Smoking Gun
 
But this very nasty development meant two important (albeit unhappy things):  1) we were beginning to know what our losses were; and 2) we now had the “smoking gun” – we had defined Todd’s negligence.  As a “one-stop shop” he had failed to ensure that we received the CWAs, to ensure that Noah had sent them, to ensure that we had received them, and it was costing us everything with the IRS.
 
More Changes
 
So, we had parted ways with A&J over their resistance and foot-dragging on the malpractice case, and now we were disgusted by the horrible settlement offer from the IRS that they pushing on us, so we also parted ways with them on the IRS matter as well.  By January 11, 2011, we had visited with Scott Greiner at Moye & White, who agreed to take on the IRS portion of our troubles. (Is your head spinning?)
 
You can imagine our despair over having to move from one attorney to the next.  While it is easy to assume we were somehow to blame for all these attorney changes, please remember, we were on the leading edge of a fairly new issue and there were significant political and social overtones to our cases.  You may recall that Todd was working at Wishful Thinking, one of the largest law firms in Denver, who was represented by one of the other largest law firms in Denver.  So the law firms we approached for representation, especially smaller ones, simply did want to take them on.
 
So, there we were again – telling our story to new attorneys (again), bringing them up to speed on the complicated details (again), and spending all our time providing documents to these two new law firms (again) and trying to convince our poor partners that they had to sign new engagement letters (again) and that this was all going to turn out okay! 
 
I don’t remember ever taking a real break in those years.  I was still working at my unsuitable job in Westminster, north of Denver, earning money we desperately needed to get us through this mess. In those days, I really thought my head was going to burst into flames, and as I’m now looking back through the hundreds of emails between us and our partners over every little thing – their K-1s, notices from the IRS, updates on attorneys, spreadsheets, and so on – all I can say is, “it was a mess!” ©Sharon Cairns Mann 

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Blog Post #29:  The Statute of Limitations:  Tug of War

12/19/2016

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So, there we were:  white knuckles, chest pains, and panic attacks . . . not the life I had envisioned for myself or my family and I was sick about it! 
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In addition to the detailed work Stan was doing on the State matters, especially on the HB-1169, we had to keep the malpractice ball in the air, especially when our fears were fueled when another unsettling news article surfaced about our attorney: “A federal grand jury is investigating Denver lawyer [name redacted] for possible abuse of the conservation-easement tax-credit program.” (The Denver Post, Aug. 17, 2010.) 
 
Once again we were left scratching our heads, mostly trying to figure out what this meant, and not seeing any connection to us.  (And, I’ll just give you a little preview:  there never was any connection to us, and nothing came of this in regards to our issues, but it was still a troubling bunny trail.)  Nonetheless, as mentioned in a previous blog post (#26), Stan had pushed A&J to file a malpractice suit against Todd in May of 2010. 
 
Since then, Nick (attorney at A&J) had been since negotiating with Major Law Firm, which represented both Todd and Todd’s very large law firm, Wishful Thinking, about a “tolling agreement” (an agreement to waive the right to claim that litigation should be dismissed due to the expiration of a statute of limitations).  Naturally neither MLF nor the insurance company that covered Todd and Wishful Thinking, were in favor of tolling agreements.  They said they would consider it if we showed them our complete file.  Ha, ha.
 
The Statute of Limitations Swamp
 
To be clear, nobody knows when the statute of limitations in this case really started to run or when it might end, because the language is so weird.  In Colorado, there is a two-year statute of limitations period for general negligence claims.  However, when the statute of limitations period begins running is not always clear – that is, at what date does your two-year period begin?  The language indicates that it begins when you knew or when you should have known of your injuries.
 
But, we still did not know exactly what our injuries were.  Obviously, we were in a world of hurt, but what specifically had Todd done?  How had he been negligent?  And how specifically had we been injured?  We were mired in problems, and had spent money on attorneys trying to fix the problems, but we had not yet paid a fine or a penalty or interest.  So, what were our actual damages?  We weren’t sure what had caused this mess we were in, but we were worried about this statute of limitations issue and wanted to preserve our right to file a malpractice case. It was a swamp!
 
More Disturbing News
 
We thought we had turned the malpractice case over to A&J (and our emails support the fact that Stan gave them clear direction to proceed), but on September 15, 2010, Nick at A&J sent us an email that was very disturbing.  It started with a lot of legalese about what triggering date for the statue of limitations on a malpractice claim against an attorney (discussed above). Nick then concludes with, “I don’t want to take a chance on this and would suggest that you file suit right away. However, you and your partners have not retained A&J to pursue malpractice claims. As such, if you want to file these suits, we would need a new matter, agreement, and retainer. Let’s talk when you have a chance to read this.”
 
Naturally, we were stunned.  We had been discussing this with A&J for 10 months.  Stan did a quick “reality check,” with our partners, and all those we contacted said they thought A&J was already representing us in this matter.  But, just to cover all the bases, Stan asked a couple of our partners who were retired attorneys to search for a “back-up” firm for the malpractice case.
 
Stan replied very bluntly to Nick that Nick should “get on it with it” in both the IRS and the malpractice cases.
 
In mid-October of 2010, we received a trial date for March 14, 2011 for the IRS cases.  A&J notified us that they would start moving forward with discovery (admissions, request for production of documents, interrogatories, etc.).  The IRS agent we were now working with, Tom Raddow, suggested we make him an offer for settlement, but we were concerned that his idea of settlement was much closer to his number than ours.  Still, we were very happy to have a settlement conference set for November 10, 2010 with Tom and Bo. 
 
The problem was that we were very disgruntled with A&J and, in consultation with one of our attorney partners, had just written a letter protesting the enormous fees A&J were charging us for very little work.  We decided we wouldn’t send the protest letter, but would instead delay our payment of their bill…but not paying them right before a settlement conference could be disastrous.
 
So, there we were:  white knuckles, chest pains, panic attacks, and nonstop bickering between me and Stan.  This was absolutely not the life I had envisioned for myself or my family and I was sick about it!
©Sharon Cairns Mann

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Blog Post #28:  A  Call for Total Amnesty

12/14/2016

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As a result, due to the reliance of innocent people on the program as designed, Colorado acquired tens of thousands of open-space acres in permanent conservation easements for tax credits that never exceeded half the appraised value of the conservation easement itself.
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As a result of attending the “Special Review Committee” In August of 2010 (see previous post #26), Stan began to work with Representative Wes McKinley to redraft HB10-1169 regarding a solution to the now hundreds of cases of landowners who had received notices that their appraisals/donations were worthless (how can land be worthless?) and that their tax credits had been disallowed. The following is the product of his labors.  Sorry folks, it’s long, and you may not want to read it all, but this blog is a repository of historical data.  So here goes:
 
 
The Colorado Conservation Easement Program Prior to the 2008 Changes in the Law, The Significant Changes and the Unfair Disallowance-of-Tax-Credit Process 
By Stanley K. Mann
 
The Program Prior to 2008
 
Providing tax incentives to landowners for donating perpetual conservation easements is not new to Colorado.  Since the 1980s the incentives were somewhat patterned after IRC § 170 (h).1  The incentives progressed from tax reduction to transferable tax credits with carry-forward provisions.  The program was so successful that the legislature kept increasing the incentive in order to induce landowners to donate their exploitation rights in land to conservation trusts. 
 
Thus, on January 1, 2003 the tax credit then available was increased from a maximum of $100,000 to $260,000.2  This maximum was based upon a two-tiered structure whereby the tax credit claimed could equal 100% of the first $100,000 of donated easement value, and 40% of the next $400,000 of donated easement value up to a maximum donated value of $500,000.  The mathematical result was thus a maximum tax credit of $260,000.
 
Also, at that time the donating taxpayer could carry over the deductions for a period of five years after the year of donation.3  Alternatively, the donating taxpayer could even sell the state income tax credit to a third party.4  And, landowners found the sale of the credits to be relatively easy.  For example: “A taxpayer could reasonably expect to broker his or her credits for about eighty cents on the dollar with 10 cents on the dollar (or a 10 percent reduction) offered to attract buyers; and 10 cents on the dollar (or a 10 percent commission) taken by a broker. Taxpayers who knew other taxpayers who might be interested in buying their credit could avoid a broker's surcharge by exchanging the credits themselves.”5
 
Because of the overwhelming success of the incentive legislation, other inducements were also added.  Among those inducements was the elimination of the minimum threshold amount available for transfer to tax credit buyers, which theretofore had gone through a series of complex limitations.6

To qualify for a state tax credit, under the 2003 version of the law, the donating taxpayer, in support of the value of the easement, had only to submit to the Colorado Department of Revenue a summary of a qualified appraisal, as opposed to a complete appraisal.7  Further, the definition of “who is an eligible taxpayer” for a tax credit included a resident individual, or a domestic or foreign corporation, . . .a partnership, S corporation, or other similar pass-through entity, estate, or trust.8  And, the motive for making the donation was not restricted to some altruistic notion of conservation, but could clearly focus upon the economic gain from the sale of the tax credit.9  “Thus, the fact that a donor may be motivated solely by tax credits should not be understood to defeat the charitable intent of a donor making a conservation easement contribution.”10
 
The law necessarily “. . . created an incentive for people to become Colorado taxpayers.  A significant, yet currently anecdotal, consequence of the credit law involves the creation of pass-through entities such as partnerships and LLCs under Colorado law for the sole purpose of qualifying partners and members for tax credits.”11 
 
The law also led to the fragmentation of real property by dividing property formerly owned by one owner into multiple parcels and multiple ownerships, or by fragmentary phased donations over a period of years either by the one owner or the multiple owners.
 
Even back in 2003 some recognized the fact that the incentives resulted in fragmentation of real estate strictly for conservation easement donations; that the motive was to obtain saleable tax credits, and that, through the LLC structure, non-Colorado residents could receive the proceeds from those sales.12  While even back in 2003 these results were regarded by some as “abuses,” the legislature apparently continued to recognize the success of the program and condone the so-called “abuses.”  
 
The legislature’s recognition of the success of the conservation easement incentives was again dramatically illustrated by the fact that on May 1, 2006, then Governor Owens signed into law House Bill 06-1354.  House Bill 06-1354 replaced the former two-tiered structure described above with a single-rate structure that allowed 50% of the fair market value of the donated easement to be claimed as a tax credit.  And by raising the maximum easement donation value to $750,000, the maximum tax credit that could be claimed was raised from $260,000 to $375,000.  Even the federal government added to the incentives by increasing the allowable conservation credit donation deduction up to 50% of the total contributions and by extending the carry-over period for the donation deduction to 15 years.13 
 
Even in 2003 legislators were being urged to understand and appreciate the success of the conservation easement program in Colorado, and not allow the so-called, and readily recognized “abuses” to harm the overwhelming success experienced to date.
 
“The fact that tax credits are incentives for the donation of easements on smaller parcels of land or land owned by multiple owners should not be used as a means to discourage such donations. In fact, motivation of potential donors by the tax credit incentive is a tribute to the success of the incentive itself. After all, the motivation is a tax credit incentive designed both to mimic and expand on federal tax deduction incentives and it is doing just that. If the tax credit incentive causes Colorado taxpayers to conserve Colorado properties that they would not otherwise have conserved and, at the same time, provides a new source of income for such taxpayers, the tax credit is accomplishing exactly what its sponsors intended. It brings Colorado taxpayers and more important, additional Colorado properties to the conservation arena.” (Emphasis added)14
 
The 2008 Changes
 
Unfortunately, the United States experienced a major economic downturn in 2007.  While the downturn may not have been the cause for new legislation in the Colorado conservation easement program, it did appear to cause a strange kind of “witch-hunt” and media frenzy in the program.  And, even though the so-called “abuses” recognized from 2003 had not heretofore been worthy of legislative action other than the addition of greater inducements to the program, now they seemed to be the basis of serious curtailment of some aspects of the program.  House Bill 08-1353 became effective July 1, 2008, and will no doubt dramatically reduce the number of acres that will become part of the conservation easement program in Colorado.
 
Perhaps harkening back to what was already voiced in 2003 by some, House Bill 08-1353 declared in part that “Some promoters have abused the tax credit program to obtain a financial benefit for themselves and their clients by submitting easements that misrepresent a property’s conservation or financial values.”[16]  The Bill requires conservation easement appraisers to submit full appraisals to the division of real estate within thirty days accompanied by an affidavit to include: a statement as to value, and the method of determining value; whether or not sand, gravel, minerals, water and improvements were considered; whether subdivision analysis was considered; contiguity information; licensing qualifications; classroom education in conservation easement valuation; and the number of previous conservation easement appraisals.  And, the real estate division has broad powers to investigate valuation and report to the Department of Revenue.[17]
 
House Bill 08-1353 enacted CRS 12-61-720 to set up standards for holders of conservation easements; enacted CRS 12-61-721 to create an oversight commission to oversee the conservation easement program; revised CRS 39-22-522 to qualify the manner in which claimed tax credits could be investigated; and modified other Colorado statutes to conform with the changes.
 
These 2008 changes in the law related to conservation easements are not necessarily bad in and of themselves, but a series of events prior to their enactment together with that enactment has resulted in some highly unfair practices by the State of Colorado against its own innocent citizens.
 
The Unfair Disallowance-of-Tax-Credit Process
 
For reasons known only to the State agent in question, an agent for the State, empowered to investigate conservation easement appraisers, began a sort of witch hunt against selected real estate appraisers in Colorado.  The method was to allege numerous allegations against the appraiser and supply the same allegations to the media.  Obviously, a media feeding frenzy resulted and the entire Colorado easement program came under severe attack. 
 
We are familiar with a case where the agent for the State referred to above reported to the Real Estate Board for Colorado a multitude of violations against an appraiser who had appraised quite a number of conservation easements in Colorado.  Based upon that information, the Board summarily suspended the license of that appraiser, and further sought the revocation of the license and civil penalties.  All of this information was given to the media and widely circulated in numerous publications.
 
Hearing before an Administrative Law Judge resulted in a finding different from what the agent and the Board anticipated, because the violations were not as numerous and egregious as alleged.  Indeed, the ALJ ruled that although there were some errors, they were not sufficient to prove they were willful or that the valuation of the property was inflated or intentionally inflated.  The ALJ imposed a short license suspension, with credit given for the time the license had been under summary suspension, and a $500 fine.
 
However, in spite of this ruling by the ALJ, according to broad media reports, the agent for the State referred to above reported to the Real Estate Board the initial allegations and sought revocation of the appraiser’s license and a fine in the range of $15,000.00. 
 
Even before the 2008 revisions to the Colorado conservation laws, CRS 39-22-522 (3.5)(a) stated in part: “In resolving disputes regarding the validity or the amount of a credit allowed pursuant to subsection (2) of this section, including the value of the conservation easement for which the credit is granted, the executive director shall have the authority, for good cause shown to review and accept or reject, in whole or in part, the appraisal value of the easement, . . . .”  (Emphasis added.)  But, based upon the allegations against the appraiser referred to above, without any reference whatsoever to the actual outcome of the hearing before the ALJ, tax credits were disallowed on the property the subject of the appraisal.
 
If this were an isolated incident it might be possible to explain the disallowance, but there are literally hundreds of such cases now pending in the State and also before the IRS hearing officers and the U.S. Tax Court, and some of the tax credit disallowances date back as far as 2003.  To add insult to injury the Executive Director of the Department of Revenue has stated publicly that she has insufficient funds to seek new appraisals by qualified appraisers or otherwise hire qualified investigators to properly investigate and process these hundreds of disallowance cases.  In fact, the Executive Director maintains that her “hands are tied” and she must simply process the hundreds of cases in a slow case-by-case process with her present staff. 
 
A lawyer, present at that same public meeting where the Executive Director made her comments, stated at the meeting publicly that he was part of the current Governor’s study team to find a solution, and that the solution endorsed by the Governor—a mediation process—is no solution at all in that at the current rate it will take over 100 years to process the currently pending cases.[18]
 
Apparently, some in the State government recognized that the Department of Revenue needed some guidance as to what constitutes “for good cause shown,” because HB 08-1353 revised CRS 39-22-522 (3.5)(a) to require the executive director of revenue to also consult with the Division of Real Estate and the Oversight Commission to review and accept or reject a tax credit.  No such consultation is required with respect to the currently pending cases.  According to the Executive Director’s statements at the above-described public meeting, her staff examines the returns and if the appraisal seems too high the tax credit is disallowed.  No expert input is sought, no qualified appraisers consulted, no investigation by qualified people conducted, but just the staff of the department because, “there are simply insufficient funds.”[19]
 
It appears to be patently obvious that in all these pending cases the process, as it is being conducted by the Department of Revenue and the mediation process, is seeking an easement value of zero or nearly zero as an effort to “recover unpaid state income taxes.”[20]  Media reports and some legislators seem to erroneously believe something near $200 Million will be recovered by the State.  In adopting such a non-supportable position and belief, these acting agents of Colorado are ignoring these important things:
 
  1. As the law is structured the State acquired each conservation easement in the first place pursuant to its own standards and requirements.
  2. Those standards and requirements had recognized pitfalls and what some stated as potential “abuses” dating from 2003.  However, the legislature patently endorsed those pitfalls and abuses by its added incentives in subsequent years.[21]
  3. As the law was structured, the State acquired the conservation easements for a tax credit valued at half the actual appraised value of the donation.
  4. The current State process goal seems to be to keep the conservation easement donations on the one hand, but to fully recover the taxes previously credited for those easements.  To accomplish this and recover almost $200 Million for the State would require a zero value for every disallowed tax credit—even after full hearings or trials—which is an outcome that is virtually not possible.[22]
  5. The current process totally ignores due process of law for those accused of submitting claims for tax credits.[23]
  6. Conservation easements are to be valued by taking into consideration the highest and best use of the land involved.[24]
  7. Donors would never have made the donations in the first place if they had known there was a chance they would lose both their land exploitation rights and their tax credits.
  8. The land of each donor is now tainted with a far lower value due to the conservation easement, and the remaining land may now be undevelopeable because of the loss of economies of scale.
  9. In most cases the donors sold the tax credits to third persons, paid ordinary income tax on the proceeds, spent the tax credit proceeds and are now in no position to pay back the tax credit purchasers let alone pay the State.
  10. The statute of limitations for amending tax returns will actually run out well before most cases will be processed by the State unless the donor/taxpayer actually preliminarily files some sort of petition for refund in advance of a final resolution.  Likely, few will know of this process because they will not have any idea what to ask for as a refund, and will assume that in a worst-case scenario they would not actually lose their entire tax credit.  But, even if they lost part of it they would be entitled to some refund of taxes paid upon the sale of a full tax credit, but lose it because the statute of limitations will have run. This is unfair to the donor because if the donor/taxpayer’s position is different from that reported in an earlier return, there is no opportunity to recover potential refunds of taxes paid.
  11. In an attempt to comply with the law, hundreds of donors expended significant sums in legal, accounting and appraisal fees to participate in the Colorado conservation easement program, and are now expending huge sums defending themselves against the IRS and the Colorado Department of Revenue—all with absolutely no hope of recovering any of those expenditures, even when they prevail.
  12. It is totally unrealistic to anticipate the State will prevail in enough cases now pending to actually offset the expenses required to process the pending cases in a manner that will afford due process of law and avoid the other potential claims Colorado will face if the current process continues at its current pace.
  13. Donors, in an effort to survive this costly and unfair assault, will have to exploit any land they retain to the greatest possible limit, thus defeating the very goal the conservation easement program sought in the first place.
  14. Donors will litigate these disallowance for years to come, at great cost to the State, and there are many legal options that may be available to donors whose tax credits have been disallowed if the current process is allowed to continue:
 
  1. Estoppel to deny the tax credits because the State designed the program; knew or should have known of its pitfalls and potential “abuses;” passed additional legislation adding new incentives to participate in the program; knew donors relied upon the structure of the program, then sought to disallow the credits.
  2. Laches for failing to process the disallowances in a manner involving due process, mitigation of losses to the donors and irretrievable harm to the donors.
  3. Interference with contract prohibited by the State and Federal Constitutions.
 
  1. Having sold their tax credits most donors will not be willing to mediate the value of their easement donations below the threshold required for what they claimed as a tax credit.  For those there is no gain to the State, and litigation is certain.
  2. The costs of litigation for both the State and the donors will go on for years to come.
  3. Many innocent, well-meaning Colorado citizens will simply go bankrupt as a result of this unfortunate process.
  4. The reputation of Colorado and Colorado government will be seriously harmed.

Summary
 
Colorado lawmakers designed an excellent conservation easement program with built-in incentives to attract donors who would otherwise not consider such a donation but rather, would exploit their land in some fashion.  The program was so successful that the lawmakers adopted new incentives to increase the conservation easement donations.  Lawmakers knew that the structure of the law allowed what some viewed as possible “abuses,” but adopted new incentives nonetheless because the program was accomplishing exactly what it was designed to accomplish.  As a result, due to the reliance of innocent people on the program as designed, Colorado acquired tens of thousands of open-space acres in permanent conservation easements for tax credits that never exceeded half the appraised value of the conservation easement itself.
 
Perhaps because of the 2007 economic downturn, or perhaps due to one or more overzealous State agents, or some combination of both, the conservation easement program became an item of focus and attack.  Fueled by the media, an aggressive pattern of tax credit disallowances ensued, apparently upon the basis of the so-called “abuses” that lawmakers had heretofore obviously chosen to condone.  The result has been that literally hundreds of disallowance cases are now pending in Colorado; no funds are available to process these cases in a due-process manner; no proper process has been put in place; and, the State, the donors, and the tax credit purchasers will all be facing irretrievable losses with no real expectation of favorable results.
 
The Solution
 
The only logical solution to this terribly unfair situation is a total amnesty bill validating all tax credits prior to the 2008 changes in the law, and carefully designed to restore the integrity of the conservation easement program; exonerate the hundreds of innocent landowner donors; and restore the confidence of the past and future purchasers of tax credits. Article by Stanley K. Mann; blog (c)Sharon Cairns Mann.


1 See, Jay, Jessica E. CHANGES TO COLORADO’S CONSERVATION INCOME TAX CREDIT LAW, The Colorado Lawyer, February 2003, Vol. 32, No. 2.

2 House Bill (H.B.) 01-1090.

3 CRS Sections 38-30.5-100 et seq.; IRC Section 170(b); Treas. Reg. Section 1.170A-14 (1986); Treas. Reg. Section 1.170A-8 (1986).

4 CRS Section 39-22-522.  See, H.B. 00-1348.

5 Id. Jay, fn 1.  Conservation Tax Credit Exchange Brochure (2002), available at Conservation Resource Center, LEAP111@aol.com; 2334 N. Broadway, Ste. A, Boulder, CO 80304, (303) 544-1044.

6 H.B. 01-1090, codified in amended CRS Section 39-22-522 (signed into law June 1, 2001; effective Jan. 1, 2003).

7 Treas. Reg. Section 1.170A-13(c)(4) (1986).

8 H.B. 01-1090, supra, note 6.

9 McLennan v. U.S., 24 Cl.Ct. 102, 106, n.8 (1991) ("Donation of property for the exclusive purpose of receiving a tax deduction does not vitiate the charitable nature of the contribution.").

10 Jay, supra, fn. 1.

11 Id.

12 Id.

13 H.R. 4-289, Section 1206 (a)(1).

14 Jay, supra, fn. 1.

[16]HB 08-1353, Section 1 (b).

[17] HB 08-1353, amending CRS 12-61-719.

[18] The public meeting was a Special Review Committee meeting regarding HB 10-1169, hosted by State Representative, Wes McKinley at the State Capitol Building on August 4, 2010.

[19] Id.

[20] Fiscal Analyst, Harry Zeid, in The Colorado Legislative Council Staff Fiscal Note: State Fiscal Impact, HB10-1169 finds that the State Revenue impact will be $169.5 Million from the Bill and that the General Fund Expenditure will be $26,983.  He assumes, of course, that the Department of Revenue estimate of $169.5 Million in disallowed credits will be lost if HB10-1169 were passed.  This, however, has been interpreted to mean that if the disallowances are processed, all will be fully disallowed and the State will actually recover the full $169.5 Million in previously unpaid taxes.   

[21] See fns. 2 and 13, supra.

[22] Fn. 20. supra.

[23] See, e.g., Colorado State Board of Dental Examiners v. Michell, 928 P.2d 839, 842 (Colo. App. 1996).

[24] Hughes v. Comm’r of Internal Revenue, U.S. Tax Court, 26, 42,43 (2009); Kiva Dunes Conservation, LLC, E.D. Drummond, Tax Matters Partner v. Comm’r of Internal Revenue, U.S. Tax Court, (2009-145).
 

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Blog Post #27:  Special Review Committee

12/7/2016

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The concept of letting the Department of Revenue grind its way through these cases at their own speed without clear guidelines is entirely unacceptable, abusive, and probably unconstitutional.
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On August 4, 2010, Stan attended a Special Review Committee at the Colorado State Capital to review the effort by Wes McKinley to grant amnesty to all the landowners whose C.E. donations had been disallowed. Here’s a slightly redacted report that Stan wrote to our partners.
 
Dear Partners:
 
Yesterday a Special Review Committee met in the Colorado State Capital to review HB-1169.  This Bill was an amnesty effort to grandfather in all tax credits from 2003-2007 as a way to end the approximately 500+ tax-credit-disallowance cases now pending in Colorado.  The Bill was originally sponsored by State Representative Wes McKinley and co-sponsored by Speaker Terrance Carroll.  In addition to the Committee members (Brian Del Grosso; Cheri Gerou, John Kefalas, Jeanne Labuda), there were several other legislators present, most from the Finance Committee and at least one whose oversight included the Department of Regulatory Agencies.
 
The Bill was originally vehemently opposed by the Governor and had been “Put-over Indefinitely” for further study (see Blog #26: “Yes, it can get worse”).  The Governor instead endorsed a mediation process for negotiating each case to a resolution designed to gain some income for the State.  The Department of Revenue was charged with evaluating each case and making recommendations to the Attorney General for negotiation compromises relative to mediation.  However, then the budget for the Department of Revenue was severely limited—as all budgets are at this point—and the Department of Revenue could not afford to hire appraisers and properly evaluate cases.  So, all the Department has done to date is assign someone to review the returns involving conservation easements and disallow whatever ones they decide to disallow.  Where the mediation process stands, whether or not it is actually binding upon any of the involved parties—i.e. donors, purchasers--; and who is going to pay for it seems to be undetermined.
 
Wes McKinley chaired the meeting and gave the Executive Director of the Department of Revenue one hour—including questions from the audience—to present her Department’s position regarding the process now in place.  Wes then gave Landowner/Donors one hour to present their position and suggestions to the Committee—also including questions from the audience and the legislators.  And finally, he gave those who purchased tax credits one hour to present their position, suggestions and responses to questions.
 
Revenue: Essentially, the position of the Director of Revenue is that she “is doing all she can with the budget she has,” and although it is devastating to many of us, we “are not alone and must just see it through” because she and her department are all good people doing their best.
 
Landowner/Donors:  Three of our partners, Marsh, Walt, and Paul went with me to the meeting.  Marsh and Walt—both of whom are lawyers—spent time helping me prepare to speak for our partners at the meeting. 
 
Our Presentation: When the Chair called for input from Landowners/Donors I was first on my feet to speak in behalf of all of you. The essence of what I presented is outlined below in the Handout (I left copies for each legislator at the end of my comments).  However, mostly because of the presentation of the Director of Revenue I decided it was necessary to change the tone of the meeting.  Therefore, I focused upon attacking the process:
 
1.    First, using our cases as a prime example of what is wrong with the process I told them about the fact that “an agent for the State brought one of our appraisers to a hearing under the Department of Regulatory Agencies for overvaluation of our properties.”  Then, after the hearing officer expressly found “No evidence of overvaluation,” that same agent (Erin Toll) reporting what she claimed was the evidence provided to the Real Estate Commission (a part of the Department of Regulatory Agencies) quoted only the allegations brought against the appraiser, and never mentioned the actual findings of “No evidence of overvaluation.”  On that false basis they literally drove the appraiser out of business and I think out of Colorado.  Further, those same false allegations now appear in the attack upon our donations by the IRS and the Colorado Department of Revenue, and the actual hearing result: “No evidence of overvaluation,” appears to be forever lost.
 
2.    When heads began to nod in affirmation of what I was saying, I knew the strategy was working and that it was the right strategy.  Therefore I began to seriously attack the fact that the easement program was formulated in the first place by the State to entice people to participate; that it worked; and that if it was faulty it was the State’s fault and not ours.
 
3.    When the audience began interrupting me with applause it was clear the tone had changed.  The concept of letting the Revenue Department grind their way through these cases at their own speed and without clear guidelines is entirely unacceptable, abusive, and probably unconstitutional.
 
4.    Essentially, the rest of my presentation pretty much followed the Handout included below.
 
5.    Many other Landowner/Donors spoke, telling some really sad and financially devastating stories, but with the new tone clearly evident: We cannot live with this current approach.
 
Tax Credit Purchasers: Only a few purchasers came to the meeting, but those who spoke were highly effective.  One man is a gravel expert from the southeastern part of the state, and had some revealing tales to tell about his experience in trying to educate a government appraiser on the value of gravel land in Colorado.  It was obvious the government, both State and Federal, has no intention of valuing anything above zero or bad pasture land.
 
The Conclusion: At the end of the meeting, virtually every legislator present vowed that something has to change.  Wes McKinley outright stated, “The State designed the program, made the deal, and it is time to stick to it.”  He favors a full amnesty for all tax credits through 2007 with no conditions.  At least one legislator wanted some exceptions or some form of latitude in the prosecutorial process.  Most, however, seemed to favor full amnesty.
 
Wes McKinley asked me if I would help him rewrite the Bill.  Of course, I agreed, and of course I will seek the input of both Marsh and Walt in doing so.
 
A new Bill will take time, and will not likely help us unless our cases drag on longer than we expect.  (
Letter written by Stanley K. Mann; blog post by ©Sharon Cairns Mann.)

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Blog Post #26:  Yes, it can get worse!

11/30/2016

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I can assure you that tangling with the two biggest law firms in Denver was not on our bucket list of bright and happy things to do.  It wasn’t glamorous, it wasn’t fun, and it was definitely the last thing in the world we wanted to do.  But there we were, dealing with our new reality. 
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By now we were drifting into 2010. Be forewarned that the year yielded an incredible jumble of issues with the State, the IRS, and the malpractice case.  It has been a challenge to try to sort out these matters and present them in a way that is comprehensible, so, for the time being I am going to stick with chronology. If you feel like the paragraphs in this post jump around like a pinball, you are right!  But remember, chronology is the glue.
 
STATE:  We were greeted by the news on January 24, 2010, that Colorado Governor Bill Ritter would “oppose any legislation to grant amnesty to hundreds of Coloradans whose tax credits for conservation easements are being challenged by federal and state authorities.”  (The Denver Post, “Ritter rejects tax amnesty for conservation easement credits.” And http://statebillnews.com/2010/01/ritter-ill-oppose-conservation-easement-tax-amnesty/) 
 
Land Owner’s United
 
We discovered that there was a group of landowners who had banded together to fight back against the state on this whole subject.  They were mostly situated in southern Colorado, and they faced the same issues we did.  They had formed a group called Land Owners United (LOU), and, while it was sad to discover that other people were suffering from the same thing we were, it was also thrilling to discover that we weren’t alone, we weren’t crazy, and we all had the same problems and experiences.
 
Here’s a more official description of the group, taken from a letter from their attorney to the Colorado Department of Revenue.  “Land Owners United (LOU) is a nonprofit organization formed to assist landowners, many of them in Southern Colorado, with the calamitous impacts caused by gross mismanagement of the conservation easement program and tax credits by the Colorado Division of Real Estate and the Colorado Department of Revenue.”
 
LOU strongly supported the abovementioned HB 10-1169 introduced by State Representative Wes McKinley and co-sponsored by Speaker of the House, Terrance Carroll.  Essentially the bill proposed “grandfathering” all 2003-2007 conservation easements, and putting an “end” to the debacle.  Now the bill was in jeopardy of dying before getting to the finance committee, and LOU was working to mobilize people to write letters.  While we have never officially joined LOU, we developed a very close working relationship with them, so they become an important part of this story. LOU is also the same group behind the current lawsuit against the State of Colorado that I mentioned in Blog Post #1 (LOU created a new group for this lawsuit called Landowner’s United Advocacy Foundation, Inc. [LUAF]  with more than 300 members. See their website at http://www.landownersadvocacy.org/home.html).  And, as a reminder, here is a link to the article first mention in Blog Post #1.  (http://www.denverpost.com/2016/03/28/colorado-landowners-sue-state-over-conservation-easement-program/)
  
IRS:  As you may recall, the IRS had begun requesting time to extend their investigation, and on the advice of both JW and then A&J, we told the partners to refuse. 
 
On Feb. 20, 2010, our partner who had received the first notices from both the IRS and State received a Notice of Tax Deficiencies from the IRS for 2005, 2006, 2007 totaling $137,211.80 (including the 40% penalty they were tacking on).  Quick question, Dear Reader:  would you be upset – maybe even faint -- if you received that notice?
 
STATE:  The excesses of Erin Toll finally began to be recognized and make headlines.  (Click here for a Denver Post article dated 3/20/2010:  “Real Estate Division dispute highlights differences in governance.”)  This kind of information reinforced our conviction that we didn’t need to sue Todd – that it was a witch hunt originated by Erin Toll, and that it would die down.  Our biggest failing?  We were optimists…
 
A series of negative articles about Erin Toll ensued, with startling quotes such as this:  "She was an unguided missile that always sought the headline." Former Gov. Bill Owens describing Erin Toll, (The Denver Post – see attached .pdf below for the whole series of articles.)
 
IRS:  At the end of March and beginning of April, our partners started to notify us that they, too, had received “Notices of Tax Deficiency” from the IRS -- notices saying they owed a ton in back taxes, due to their deduction for the conservation easement being disallowed, plus penalties (a whopping 40% and interest).  All of our donating partners.
 
STATE:  On April 9, 2010, we read that Land Owners United (LOU) had won their Open Records Request in Denver District Court Division 9.  “The Colorado Division of Real Estate and the Colorado Board of Real Estate Appraisers unlawfully withheld records and failed to respond to repeated, written requests for public records made by a group of Southeast Colorado property owners in August and September of 2009, a Denver District Court judge recently decided.”   http://www.denverrealestatewatch.com/2010/04/09/land-group-wins-court-decision/
 
I have verified with LOU that this decision was appealed by The Division of Real Estate (Erin Toll), but Land Owners United won again on appeal in August of 2011. Unfortunately, links to that decision have disappeared.  If you have a link, please send it to me so I can add it!  Thanks. 
 
IRS:  On April 12, 2010 A&J wrote a lengthy letter to all our partners detailing the long process of dealing with the IRS in Tax Court, and then added, “This, however is not the end of the controversy. This is actually the beginning.”  How’s that for cheerful news from your attorney? 
 
MALPRACTICE:  As we were grinding our way through these IRS cases that spring, we began to catch a new scent – that maybe Todd’s work had not been as thorough as it should have been.  We began to contemplate the ugly fact that we might have to actually sue Todd and the Major Law Firm. 
 
In May, Stan told A&J to go ahead and file a malpractice suit against Todd and Wishful Thinking, and A&J began corresponding with MLF (remember them?) who represented Todd and Wishful Thinking.  Dear Readers, Wishful Thinking and Major Law Firm are two of the biggest law firms in Denver.  I can assure you that tangling with them was not on our bucket list of bright and happy things to do.  It wasn’t glamorous, it wasn’t fun, and it was definitely the last thing in the world we wanted to do.  But there we were, dealing with our new reality. 
 
STATE:  And, at the same time, another article came out supporting what we had always known – Erin Toll was a problem. See “The Rise and Fall of Erin Toll:  Colorado Regulator with a Tough Reputation” May 7, 2010.    “http://www.denverpost.com/2010/05/07/the-rise-and-fall-of-erin-toll-colorado-regulator-with-a-tough-reputation/
 
In June of 2010, I move from one unsuitable job In Denver to another – a full time position with benefits.  We desperately needed the money and with Stan tied up with construction on our house and spending money like crazy, I needed to plug the financial holes.  Little did I know I was just throwing myself under the bus as far as more abuse and craziness! The new job was so busy I couldn’t even take potty breaks.  More stress – just what I needed. 
 
The day before I was supposed to start the new job, I got stung by a bee at our construction home in Walsenburg just as I was leaving for my drive back to Denver.  When I started the new job the next day, I was really sick, and covered with red splotches everywhere. I hauled my brand new coworker (a nurse) into the bathroom with me and pulled down my pants to show her my pink waffled butt.  “Honey,” she said, “those are hives – you’re just covered in hives. You better get yourself to the ER right now.”  Even my throat and lungs felt furry.  I was having an extreme allergic reaction and I probably should have been in the ER, but desperate to keep this new job, I foolishly soldiered through the day.  Desperation will cause one to do crazy things.
 
The new job required me to stay five days a week in Denver, then make a mad three-hour-plus dash on weekends down to the work site where we were building our home south of Walsenburg.  The job was extremely stressful, the commute was taxing, and I felt as if everything would fall apart if I blinked.
 
In addition to all the matters related to the conservation easements, we had a lot of demanding personal stuff going on.  We were building our own home, and it was a major project in and of itself.  It’s not the subject of this blog, but I hope it helps the reader appreciate that in addition to all this C.E. stuff, we had personal lives that frequently felt like they were falling apart due to the impact on our time.  Not to mention that this onslaught had already been a long, tough slog.  My nerves were getting frazzled, I was beginning to have chest pains, panic attacks, physical issues -- I was just plain miserable. ©Sharon Cairns Mann 

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Blog Post #25:  Can it Get Any Worse?

11/23/2016

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​By the fall of 2009, we realized our troubles with the IRS were not going to go away and we were likely going to have to fight them. And, by then, we had the state breathing down our necks as well – can it get any worse? 
 
In early September, we advised Boetz that we were represented by JW at MLF, and introduced them to each other online.  We corresponded with both of them, supplying more information about Tracts #4 and #10.  Boetz sent forms to me to sign that we are the “Tax Matters Partner,” for all of the Conservation Easements, and JW told me to proceed with that.
 
Meanwhile, our donating partners had started receiving what is called a “30-day letter.”  JW had told us that we should not respond to the 30-day letter, which would then force the IRS down a different path than if the taxpayer responds[1].
 
A flurry of emails between me, the partners, and JW ensued, and by this time we were demanding that JW send us an engagement letter for him and his firm.  My records show that I consistently requested the engagement letter from September 9, 2009 to October 23, 2009. Meanwhile, JW continued to represent us without the engagement letter.
 
The IRS had sent a request for extensions to all the donating partners (ostensibly so they could dig up more dirt on us).  On October 23, JW advised me to advise our partners not to sign those requests, and that by the end of the day he would send our engagement letter to us.  So upon his advice, I sent a letter to the partners telling them not to grant the extensions to the IRS and to watch for anything they might have to sign from JW. 
 
I asked at the outset of this post, “Can it Get any Worse?”  Yes, it can!  Abruptly, on October 26, 2009, JW at the Major Law Firm (MLF), declined to take our case.  We were stunned.  We had hunted high and low to find him, we needed to take action, we had worked with him for at least 14 months, he told us October 23 to expect a fee agreement by the end of the day, and now he refused to proceed. 
 
Do you want to know why?  Because JW’s Major Law Firm also represented Todd, our original C.E. attorney (along with Wishful Thinking, Todd’s very big law firm), and people were beginning to sue Todd and Wishful Thinking because many of them were also having problems with the IRS and the State.  And, even though we had hired JW to represent us against the IRS, JW and MLF were afraid we were going to sue Todd, too, which would clearly be a conflict of interest for them.  Except, JW at MLF knew this all along, and strung us along for 14 months, then threw us under the bus. (To JW’s credit, he never billed us for his time, so at least this wasn’t a serious “money-down-the-drain” episode, but it was a “time wasted” episode.)
 
While the thought of suing Todd had certainly crossed our minds, we still did not consider it an option.  First of all, we still saw this as a witch-hunt by Erin Toll and a lot of misguided folks in the State, but we were getting nervous about all the people who were suing him. And, second, we still did not see that he had done anything wrong, so if there was no negligence on his part, there were no grounds for suing him.
 
So, on October 26, 2009, we were abandoned by JW and Major Law Firm and again frantically searched for new representation, finally coming up with a team at A&J.  In mid-November of 2009, we signed a fee agreement with A&J, and asked them to proceed in filing our cases against the IRS.  (Dear Reader, please note that we brought the cases against the IRS for disallowing our charitable contributions based on the conservation easements when there was no basis for them to disallow them. I say this because some folks have been critical of us, believing that we were the ones who got sued.  We did not.)  By the time we signed found A&J, we had also become convinced that we needed to ​preserve our right to sue Todd​, (although, as mentioned above, we were still unclear exactly what negligence or malpractice had occurred), so we asked A&J to take on the “potential” malpractice case as well.
 
So, guess what Stan and Sharon were doing again?  Remember all those documents we had provided to the IRS, and then to the state, and then to JW at MLF?  We had to start all over again and provide them to A&J.  So, for the remainder of 2009, Stan and I worked our butts off again to provide the data necessary for A&J to proceed.  Dear Reader, please remember that we had 23 partners (I was partner #24) and there were 15 separate Conservation Easements…that’s a lot of paperwork! 
 
Late in 2009, Joan Dittmer wrote a vague Op-Ed in The Denver Post (see attachment   below) that supported the Conservation Easement program in Colorado, but without apparently understanding that hundreds of landowners were being egregiously hurt by the very process she was lauding.  But, ​at least she came out in favor of the conservation easements and explained their inherent value to the citizens of the state!
 
We closed out 2009 gearing up to fight the IRS and wondering what was next from the State of Colorado. ©Sharon Cairns Mann

[1] To explain this, I use a later memo from another law firm, “A taxpayer can challenge a 30-day letter by filing a Protest, which will cause their dispute to be sent to the IRS Appeals Office to discuss settlement.  In our experience, however, Protests often turn out to be a ‘less preferred procedural path.’  This is particularly true in conservation easement cases because the IRS has designated conservation easement cases as “coordinated cases.” When considering coordinated cases, the IRS Appeals Office does not have the same settlement discretion that it would otherwise have in a case that is not a coordinated case. There is often no meaningful settlement potential at the Protest stage in a coordinated case.”

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Blog Post #24:  Double Whammy

11/16/2016

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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.”
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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.
 
  1. 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.
  2. JW is already handling 100 of these cases, so he is very familiar with what is happening.
  3. 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.
  4. 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.
  5. 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.)
  6. JW will make that final decision at that time.
  7. 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.
  8. 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.
  9. 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.
  10. Our lawyer does not want to be locked to a particular position until he can see how the earlier matters are being resolved.
  11. 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 

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Blog Post #23: There May be Some Cussin'

11/10/2016

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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!! 
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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

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Blog Post #22:  Highest and Best Use

11/2/2016

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Conservation Easement appraisals were supposed to consider the “highest and best use” of the land.  The highest and best use of our land was clearly a development.

We apparently were on the “wrong side” by the sheer bad luck of having had our first appraisals done by Julie O’Gorman, who had simply had the bad luck of being targeted by Kevin Shea, Mark Weston, and Erin Toll for no reason we have ever been able to discern. 

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So, we ended 2008 just like we had ended 2007: “waiting.” 
 
Between seeing JW in August 2008 and the end of 2008, not much happened.  I hauled stacks of boxes of paperwork and CDs with more documents to the IRS center at Inverness in the Denver area to deliver into Boetz’s hands. In order to stay sane and keep track of all the documents, I had to make inventories of the contents and then make lists of the inventories!  You simply cannot believe how much data there was.  It was a distressing time.
 
We contacted JW a couple of times with questions, but it was a quiet time of waiting.  Desperate for money, I started a new job in Denver that was completely unsuitable for my experience, personality, and skill set.  But, with Stan building our house full time, money was flowing out way too fast.  It was extremely stressful to be working in Denver and making a mad dash home to Walsenburg every weekend (a three hour drive), but I felt the weight of the world on my shoulders, and extremely anxious about our finances.
 
The “So-Called” IRS Appraiser
 
In early 2009, Boetz finally made an appointment with Stan to show Boetz and the IRS appraiser the land.  Remember, up until now, no one from the state or the IRS except for Boetz had ever talked to us.  So, we were quite happy that Stan actually had a chance to meet with the appraiser (Tim Walters) and walk the land with him before Walters did the appraisal.
 
Stan spent almost 30 hours researching and preparing for the meeting with Boetz and Walters, and he provided Walters with detailed historical notes on the development, projections of future profits, etc.  And, of course, Stan and I were corresponding with JW at MLF about all of this.
 
We were enormously frustrated that we had spent all this time waiting for the IRS, and our land was tied up in limbo because of the IRS’s slowness:  we could neither sell it, nor develop it, nor do more conservation easements.  It seemed terribly unfair, but all we could do was wait.
 
Highest and Best Use
 
At this point, I realize that I may not have made some things clear about the appraisals for conservation easements, so let me pause and do so.  When the statutes were written about donating land into a conservation easement, the IRS and State recognized that an individual was giving up the land forever.  This means that the valuation should take into account not just the current value and the current owner or the current use, but also the fact that if you put your land into a conservation easement, your heirs have also lost the ability to sell it at its full price or develop it.  It means that even if it doesn’t have a lot of value now, things could change in the future.  For more information about the real estate principle of highest and best use, click here.
 
For example, say you have a dinky home on a corner lot in Denver that may not be very valuable right now, but could conceivably be a desirable lot for a high-rise building.  This notion of peering into the future for “the highest and best use” was therefore included in the instructions for how conservation easement appraisals were to be done, which means they were to consider the “highest and best use” of the land. Just because you don’t have a high-rise on your piece of property right now, if your property is strategically located, and other criteria are met (see graphic), it is conceivable that there could be, should be, or might be one there in the future because that  is the highest and best use of that piece of land.  Therefore, if you donated your land to a conservation easement, you wouldn’t just be giving up the value of the land right now, but you’re also giving up what you might sell it to a developer for in the future.
 
This idea of “highest and best use” of the land is extremely important in our case, because we were clearly heading down the path of development, with approval and blessing from the County, with subdivision plans, approved filings, and residential zoning.  We were not in the grasslands of eastern Colorado that may not ever be developed.  We were right on I-25 with an extremely desirable residential subdivision (please refer back to Blog #7, in which I describe why it was such a fantastic piece of property and the specifics of our development plan).  So, the highest and best use was clearly a subdivision.
 
We finally got our day with the “so-called” IRS appraiser.  I say “so-called” because these IRS appraisals were actually being done by local appraisers (not IRS appraisers) and by this time appraisesrs in Colorado were living in abject terror under Erin Toll’s reign and were eager to show themselves aligned with the “right side.” We apparently were on the “wrong side” by the sheer bad luck of having had our first appraisals done by Julie O’Gorman, who had simply had the bad luck of being targeted by Kevin Shea, Mark Weston, and Erin Toll. 
 
Stan spent hours with Walters, pointed out the fact that the utilities were present, handed him detailed notes, and off Walters went.  And then we had to wait, and wait, and wait.
© Sharon Cairns Mann

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    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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