House Bill 1361 Documents

• Isaacson Rosenbaum P.C. Conservation Alert HB07-1361

House Bill 1361 Summary

The information presented below is from an alert Isaacson and Rosenbaum P.C. put out in August of 2007. This is intended as a summary of the legislative changes and proposals. It is not to be treated as legal advice.

The Colorado Coalition of Land Trusts (CCLT) pursued legislation during the 2007 legislative session to require greater transparency and higher appraisal standards for the Colorado conservation easement tax credit program. This is part of an ongoing CCLT effort to improve the credibility of the program. The result was HB-1361, which requires organizations that accept donations of conservation easements in gross (including qualified organizations such as land trusts and local, state and federal governments), taxpayers, and appraisers to submit certain information before a state income tax credit is allowed. CCLT is working with the Colorado Department of Revenue to create standardized forms for this information. HB-1361 imposes the following requirements when a state tax credit is claimed for a conservation easement donation:

• Organizational Filing: Beginning January 1, 2008, any organization that accepts a donation of a conservation easement in gross must submit the following information to the Colorado Departments of Revenue, Agriculture, and Natural Resources annually, prior to accepting any conservation easement in that calendar year but, in any event, no later than April 15 of that calendar year:
  
  
  1. a table that includes:
     • number of conservation easements held by the organization in Colorado;
     • number of acres of each conservation easement held in Colorado;
  2. names of the board members if the organization is a private nonprofit organization or the names of the elected or appointed officials if the organization is a public entity;
  3. signed statement from the organization acknowledging that it has a commitment to protect the conservation purpose of the donation, the resources to enforce the restrictions, and the resources and policies to annually monitor each conservation easement held by the organization in Colorado.

  The Department of Natural Resources and the Department of Agriculture shall make this information available to the public upon request.

• Easement Holder Affidavit: For each transaction for which the tax credit is claimed after August 3, 2007, the holder of the conservation easement in gross must provide the taxpayer with a sworn affidavit that includes the following information:
  1. a copy of the Organizational Filing, as described above;
  2. an acknowledgment of whether the transaction is part of a series of transactions by the same donor; and
  3. an acknowledgment that the holder has reviewed the completed Colorado gross conservation easement credit schedule (Form 1305) to be filed by the taxpayer and that the property is accurately described in the schedule.
• Taxpayer Filing: For tax credits claimed after August 3, 2007, taxpayers must submit the following information to the Department of Revenue when they claim a credit for a conservation easement donation:
  1. whether a deduction was claimed on the taxpayer's federal income tax return for a conservation easement;
  2. a statement reflecting the information included in the non cash charitable contributions form (IRS Form 8283) used to claim a deduction for a conservation easement in gross on a federal income tax return (regardless of whether you claimed a deduction on your federal income tax return);
  3. a statement to be made public by the Department of Revenue that includes the following information:
     1. a summary of the conservation purposes as defined in Section 170(h) of the Internal Revenue Code that are protected by the easement;
     2. the county, township, and range where the easement is located;
     3. the number of acres subject to the easement;
     4. the amount of the tax credit claimed; and
     5. the name of the organization holding the easement.
  4. a summary of a qualified appraisal that meets the Appraisal Requirements, as set forth below;
  5. the Appraiser Affidavit, as discussed below; and
  6. the Easement Holder Affidavit, as discussed above.
• Appraiser Affidavit: For each transaction for which the tax credit is claimed after August 3, 2007, the appraiser must provide the taxpayer with a sworn statement that includes the following information:
  1. a statement specifying the value of the unencumbered property and the total value of the conservation easement;
  2. if the appraisal separately allocates the values of sand and gravel, minerals, water, or improvements, a statement of the separate value of the sand and gravel, minerals, water, or improvements before and after the conservation easement is granted;
  3. an acknowledgment specifying whether a subdivision analysis was the primary methodology used in the appraisal; and
  4. a statement specifying how the appraiser satisfies the qualified appraiser and licensing requirements set forth in HB-1361, as discussed below in Appraisal Requirements.
• Appraisal Requirements Under HB-1361, appraisals and appraisers must comply with the following requirements:
  1. It must be a qualified appraisal from a qualified appraiser (both as defined in section 170(f)(11) of the Internal Revenue Code);
  2. The appraisal shall conform with the Uniform Standards for Professional Appraisal Practice; and
  3. The appraiser shall hold a valid license in Colorado as a certified general appraiser.

Several other matters were addressed by HB-1361:

• The Department of Revenue must report substantial or gross valuation misstatements (as defined in section 1219 of the Pension Protection Act of 2006)to the Board of Real Estate Appraisers for disciplinary action.
• The Department of Revenue can require a second appraisal, at the taxpayer's expense, if the Director reasonably believes the appraisal contains a gross valuation misstatement.
• If a tax credit for a conservation easement donation is transferred, the transferee of the credit is subject to the same statute of limitations as the transferor.
• On or before July 1, 2008, the Department of Revenue is required to create a publicly available report with the information provided by land trusts and appraisers about each conservation easement donation for which a tax credit was claimed during the prior year, summarized by county where the easement is located, identifying the acres under easement, the appraised value of the easement, the donated value of the easement, and the names of any holders of the easement. This report must be updated annually.
• On or before December 31, 2007, the Department of Revenue is required to create a publicly available report, summarized by county, that includes as much of the following information as is available for each tax credit claimed for a conservation easement in gross for tax years starting on or after January 1, 2000:
  1. a summary of the conservation purposes as defined in Section 170(h) of the Internal Revenue Code that are protected by the easement;
  2. the county, township, and range where the easement is located;
  3. the number of acres subject to the easement;
  4. the amount of the tax credit claimed; and
  5. the name of the organization holding the easement.

HB-1361 applies to all state income tax credits "claimed" after the effective date of HB-1361, which is August 3, 2007. We believe "claim" to mean the first time the taxpayer identifies the tax credit to the Colorado Department of Revenue in a Colorado tax return. This is in contrast to the act of "generating" the state income tax credit, which occurs upon the recording of the conservation easement, and in contrast to the act of "carrying-forward" the state income tax credit, which occurs when a taxpayer has a credit surplus after making the initial claim and uses the surplus credit in later years. These distinctions are important, because the application of HB-1361 depends on which stage the state income tax credit is applicable, i.e., is it being generated, claimed, or carried-forward. HB-1361 generally applies to all 2007 conservation easement donations because the credit from a 2007 donation cannot be claimed before January of 2008, when a 2007 Colorado income tax return can first be filed. It will also apply to donations made in prior years where the credit has not been previously claimed by a taxpayer. We do not believe the submittal requirements under HB-1361 will be imposed multiple times when a credit is carried forward over several years.

This interpretation of HB-1361 is consistent with the legislative history and the broader legislative scheme. The Senate Committee on Finance heard testimony that HB-1361 would not apply to tax credits that were initially claimed prior to the bill's enactment. Furthermore, the conservation tax credit act (C.R.S. Section 39-22-522) requires taxpayers to submit a summary of an appraisal when a tax credit is claimed. The Department of Revenue has interpreted this requirement to mean the taxpayer must submit an appraisal only once at the time the credit is first claimed. We expect the Department of Revenue to apply HB-1361 similarly. Likewise, the Colorado Gross Conservation Easement Credit Schedule (Department of Revenue Form 1305) distinguishes between the initial credit claimed and credits that are carried forward, because the taxpayer must submit supporting documentation only if it is claiming the initial tax credit for a conservation easement donation.

The analysis here is predicated on an interpretation of HB-1361. Please note that HB-1361 is still subject to interpretation by the Colorado Department of Revenue.