This is the first installment of a three-part investigative report from US~Observer. For background, read Conservation Easements: The Rape And Pillage of Landowners.
Imagine you use a licensed tax preparer to file your Federal income taxes, just as you have for the past 10 years. Using standard lawful deductions, you have always gotten some money back or at least reduced your taxes. The economy crumbles and Congress re-writes the tax code. You subsequently receive a letter from the Internal Revenue Service that states you are responsible for paying back all the money you have received over the years (resulting from deductions), plus multiple years’ worth of interest and penalties. Crazy? You would think.
Now imagine that it is a State land scheme you are dealing with and that your property, previously appraised at highest and best use for conservation easement (CE) purposes, has just been revalued by the State (which has no authority to do so) at “zero” and that you are being ordered to repay tax credits legally given to you over the past years, plus penalties and interest. Welcome to Colorado’s CE program. Under the guise of conserving land and natural resources for future generations through CEs, the State of Colorado has abused and bankrupted law-abiding citizens in a bait-and-switch scheme worthy of national attention.
As announced in our last edition, the US~Observer is investigating this “scheme” developed by private attorneys and enacted by the State of Colorado, which lured unsuspecting landowners (farmers and ranchers) into forever encumbering their property with a CE. They did so with the promise that the landowners could legally monetize the development (property) rights of their land. And then many years after the transactions, the State of Colorado reneged on the deal and began its extortion tactics. If a common citizen did the same thing that the State did, it would factually fit the crime of racketeering.
What began as a nefarious strategy for attorneys to obtain Colorado State tax credits for their wealthy clients transformed into an industry through which said attorneys enrich themselves. The process has caused disasters, including bankruptcy; family breakups; and mental, physical and financial despair for unsuspecting land owners and their State-licensed appraisers, who all followed the law.
The alleged architect, Larry Kueter, is a Denver attorney who reportedly persuaded Colorado State Representative Lola Spradley to introduce cleverly designed legislation in 1999 and 2001 that purposely minimized “oversight” in order to provide lucrative benefits to special-interest attorneys, tax-credit brokers and wealthy clients by offering “State tax credits” for Colorado CEs.
What Is A Conservation Easement?
The term emerged in the 1950s, with the U.S. Congress passing an amendment to the Tax Reform Act of 1976 providing expressed authority for IRS tax deductions for CE donations. A CE isn’t anything like a traditional easement, where a landowner gives permission for a “positive restriction” to another entity (government, business or individual), which is the right to make limited use of the property for a specified purpose, duration and/or designated sum of money (i.e., a buried pipeline, cable, road access, etc.). Conversely, a CE is a “negative restriction” where the land owner restricts the property from ever being developed (mining, housing, water, etc.). He does so by placing the subject land into an IRS 501 (c)(3)-certified Land Trust, a special nonprofit that is set up to “receive” these donations and to be responsible for monitoring the entrusted land. The landowner records a CE deed (restriction) with the respective county clerk and the CE deed must identify the receiving land trust in order to qualify for the authorized tax deductions. The value of the tax deduction is determined by a qualified appraisal, as identified by the Federal regulations IRS 170(h).
On the premise of preserving “open space” and preserving Colorado’s “natural resources,” Larry Kueter reportedly cleverly manipulated Colorado State legislators to enact a law to generate “State” tax credits, with provisions that land owners (CE donors) could “transfer” (sell) State tax credits to more wealthy individuals. Despite the well-reasoned opposition testimony of Colorado State Representative Douglas Bruce identifying numerous concerns (lack of oversight, qualifications for appraisers, how are “perpetuity” values determined, the Department of Revenue’s inability to monitor or examine appraisals, could CEs be established anywhere 50 miles east of Springfield, Colo., etc.), Larry Kueter reportedly assured the Colorado State Legislature that adding oversight would be cumbersome and that the IRS regulations were self- policing. The legislation passed, with the influential front-range attorneys, land trusts, and tax brokers all elated and ready to rake in lucrative tax deals for their wealthy clients.
Reportedly, those directly benefiting from the CE program include Denver attorneys Larry Kueter and Bill Silberstein,tax credit brokers, attorney Mike Strugar of Strugar Conservation Services LLC in Boulder, Carl Spina of Conservation Tax Credit Transfer LLC and Marty Zeller of Conservation Partners. According to information received, another very questionable individual is John Swarthout, former president of Colorado Coalition of Land Trusts. Curiously, Swarthout recently joined Governor John Hickenlooper’s office, as a “policy adviser” and is reportedly heavily tied to oil companies.
The Tax Credit Brokers’ Control Of The CE Business
Up to the point of the legislation passing, cash-poor land owners had little to no benefit in using CEs on their property. The legislation, however, gave these struggling individuals a way to monetize their property rights, while keeping it in “trust” for future generations of Coloradans — a seemingly win-win scenario.
The promoters of the CE program obviously failed to foresee the wide acceptance of participation in the CE program by Colorado farmers and ranchers. And some of the promoters conspired to create a mess in order to manipulate control. The control, it turns out, was to discredit (destroy) the legitimacy of any appraisal that did not meet the allegedly unscrupulous promoters’ personal criteria and greedy agenda.
In one of the numerous committee hearings held by the legislature, Carl Spina reportedly asserted that he, as well as any of the tax credit brokers, could determine the validity of any appraisal or easement in a period of 15 or 20 minutes and for any State agency to have that authority would be unnecessary.
The notion that establishing a CE and respective State tax credits was complex was not lost on the land owners; they expended a great deal of money to hire the appropriate professionals to ensure complete compliance (i.e., State-certified appraisers, attorneys, certified public accountants, wildlife biologists, geologists, etc. — see graphic insert below).
When the legislation passed, the State legislators anticipated about $15 million of tax credits to be generated annually, according to the bill sponsors. However, after the land trusts wooed land owners across the State with the “lure” of cash from the sale of tax credits and the good feeling conveyed by the land trusts of doing something for conservation, the State was obligated for more than $265 million in tax credits.
–Ron Lee and Lorne Dey