A fight over tax credits and a conservation easement program has cost many Coloradans their homes, farms and ranches. Some property owners have died from the stress of fighting the Department of Revenue, said a group of witnesses to lawmakers last week, pleading for help.
The rallying cry was clear: The Department’s abusive behavior toward landowners, which includes years of fighting over land values and the tax credits that go with them, needs to stop.
The Department of Revenue defends the success of the conservation easement program. But in two Statehouse hearings, not once did a department representative address accusations of abuse made by those worn down by a decade of fighting.
The conservation easement program works like this: Landowners contract with a land trust. The land trust holds the deed to the property, although the landowner still owns it.
The benefit of such a contract? The land remains pristine: no housing projects, oil and gas wells, solar or wind power, or any other kind of development. The landowner keeps the land for limited use: farmers continue to grow crops, ranchers keep grazing cattle, and homeowners keep living there.
Conservation easements have been used by communities to create open space and save wetlands and wildlife habitats. One of the most successful is a land trust in the Estes Valley, which has preserved thousands of acres from development that are now used for recreation.
In exchange, the landowner receives a tax credit that can amount to hundreds of thousands of dollars. That tax credit is submitted with the landowner’s income tax filing on April 15.
The Internal Revenue Service has a statute of limitations of three years to accept or reject the credit. The state Department of Revenue is allowed an additional year.
Once the tax credits are awarded, the farmer or rancher can sell them to anyone, and many did, for around 75 cents on the dollar. Farmers and ranchers could use that money for their kids’ college funds or to build up a retirement nest egg. Those who buy the tax credits can apply them to tax liabilities.
The program began in 1999, when the state was flush with cash. But it turned out to be more popular than expected. Over a 13-year period, the state granted $675 million in tax credits on 4,000 easements, according to Debbie Van Wyke, who administers the program for the Department of Revenue.
According to witnesses this week, that’s when the Department starting crying “fraud” and ran to the legislature to halt the program. The Department claimed many appraisers were overvaluing property to scam the state out of tax credits.
In the program’s 16 years, there has been one conviction in a fraud case, out of more than 4,000 applications for the tax credit. That conviction happened just last week.
In the meantime, however, the Department has denied more than 800 applications for the tax credit, based on claims the appraisals overestimated land values. Witnesses pointed out they were allowed only to use state-certified appraisers.
Sen. Jerry Sonnenberg, a Sterling Republican, held hearings on the program abuses last summer, and heard first-hand about the problems and the hundreds of thousands of dollars some have paid fighting the Department.
Sonnenberg recently asked the Senate Finance Committee to approve a bill, Senate Bill 16-044, that would force the Department to accept appraisals unless the appraiser has been convicted of fraud. But the bill’s biggest problem is its cost: $117.6 million to cover tax credits, including for cases that have already been settled between landowners and the Department of Revenue.
Rep. Jon Becker of Fort Morgan also has a bill, heard last week by the House State, Veterans and Military Affairs Committee, which would cover the tax credits for the 50 or so cases that haven’t been settled. The tax credits would cost the state about $8 million over a six-year period.
Becker’s bill, House Bill 16-1174, goes one step further. If the conservation easement has been denied by the Department, under Becker’s bill the landowner would receive free and clear title to the land, allowing for development or any other purpose.
But that solution works only in limited situations, according to witnesses. Landowners whose tax credits were accepted by the IRS would not be eligible.
Wyke told the State Affairs Committee that the law should not be changed for such “a small number” of cases — 800, out of the 4,000 total applications for tax credits. She said amending the law would open it to abuse, including giving tax credits to an Oregon man, Alan DeAtley, who was convicted on February 10 of 22 criminal charges, including defrauding the state of $3.5 million in schemes tied to the easement program.
Witnesses described to lawmakers the horror of dealing with the Department of Revenue. Alan and Julie Gentz of Sterling signed up for two easements, in 2006 and 2007. The property they wanted to donate to the land trust has ponds and wildlife, they told the committee Wednesday. Neighbors testified to the beauty of the land in the Gentz easement.
But the Department of Revenue ignored their own statute of limitations to deny their tax credits, even after the Gentzes hired five different appraisers, who all came up with the same value.
Fighting the Department of Revenue has cost the Gentz family $250,000 in attorneys’ fees and a decade of their lives. They’re still waiting to go to court. Alan Gentz said their children’s college fund is gone as is their retirement money, which has paid for their attorneys.
“We’ve been punished for donating our land,” Alan Gentz told the committee.
The couple may still lose their farm as they continue to fight the Department. They have a court hearing scheduled for September, but told the committee they’re running out of money.
“Stop the tyranny!” Gentz begged the committee. “We need your help!’
And in order to get his day in court, Gentz was required to put up a $1.4 million bond, or guarantee of payment in case they lose, which he couldn’t afford. There is now a lien on his farm to satisfy that bond.
Witnesses claim they have been threatened by the department and the Attorney General’s office to settle their tax credit disputes. Rick Marcus, who has farms in Crowley and Otero counties, in southeastern Colorado, said he has gone to court several times over the statute of limitations issue. He’s won at every level.
It hasn’t stopped the Department from threatening him:
“Settle or suffer the consequences,” one letter from the department stated, according to Marcus.
No one has enough money to continue to fight the department, said witnesses, including Jiliane Hixson of Lamar. The IRS did a three-year audit of her tax credits and found them valid, although the Department of Revenue denied her credits. But when she relayed that information to the Department of Revenue, she said, she was told the department didn’t care what the IRS said, since the department has its own standards for granting tax credits.
“It’s been a decade of hell,” she said, likening the Department’s behavior to “rape.” Her 2003 tax credits were denied by the Department one day before the four-year statute of limitations ran out.
Hixson eventually settled with the department, in part because she ran out of money to fight in court, but she still has to fend off lawsuits from those who bought her tax credits. She also has no control over her land: the land trust that made the contract can borrow against her land without her consent and can sell or trade it to other organizations.
The Department “has ruined people’s lives,” Hixson said. “There have been deaths, divorces and bankruptcies because of their abuse of power. I rue the day I ever heard of conservation easements…I tried to do the right thing,” but fighting over the tax credits has jeopardized her entire family and a generation of work.
Becker’s bill got grudging approval from the committee, on a 5-4 vote that included Democratic Rep. Max Tyler of Lakewood. Several committee members, including Tyler, questioned whether Becker’s bill is the right solution, but they voted to send it to the House Finance Committee for further discussion.
Sonnenberg’s bill is awaiting a second hearing in the Senate Finance Committee. They delayed action on it at Sonnenberg’s request, who acknowledged he did not have the votes to get it passed. His bill will be voted on this week.
Hixson had a warning for lawmakers in both committees. Given the difficulties experienced by so many, “people will no longer donate land through conservation easements,” she said. “It will result in urban sprawl into land where farmers grow your food.”
Photo credit: Colorado Senate GOP, Creative Commons, Flickr.
I think the problem is that several of these appraisals had wildly inflated values (thus making the tax credit worth more). If the state accepts the bogus appraisals, it means the rest of us have to pay more in taxes. The land owners should be going after the appraisers/lawyers, instead of whining to the state about having to return money they never should have received in the first place.