The Internal Revenue Service is
threatening to sharply limit the use of conservation easements, which have
protected huge stretches of Colorado land from development.
Conservation leaders and lawyers say that in the past few
weeks, IRS officials have said they believe only habitat for endangered or
threatened species qualifies for tax incentives.
"We're all in a little bit of a shock," over that
interpretation, said Will Shafroth, head of the Colorado Conservation Trust.
The definition of qualifying land in the IRS code itself is "relatively natural
habitat," he said.
An IRS spokeswoman could not be reached for comment
Tuesday afternoon.
The IRS move "could damage the integrity of hundreds of
legitimate conservation efforts across Colorado, as well as thousands across
the country," the Colorado Coalition of Land Trusts told Sen. Ken Salazar in a
recent letter, according to director Jill Ozarski.
If it stands, it "will disqualify a very large number of
Colorado donations," said attorney Larry Kueter, who has handled many such
easements and is counsel to the Colorado Coalition of Land Trusts. "It's not
supported by law, regulations or a tax court decision."
He said the IRS may have to lose an appeal before it backs
off.
The IRS is auditing 250 Colorado tax returns with
conservation easement deductions and says it found that most don't meet the law
or have high appraisals.
However, an IRS agent at a recent meeting with Salazar
said his agency had not yet formally rejected any taxpayers' deductions, said
Ozar-ski, who was at the meeting.
John Swartout, head of Great Outdoors Colorado, said the
mere threat from the IRS is damaging. "The fear is: Do a conservation easement
and you get an IRS audit," he said.
Colorado activists have taken a much broader view of land
that holds conservation value. It includes scenic vistas along Interstate 25,
habitat for favorites like bighorn sheep and homes for not-yet- threatened
species, like the mountain plover, activists say.
"We're trying to protect habitat ahead of listing as an
endangered species," said Swartout, whose agency gives grants for the purchase
and donation of easements. "It's pre- emptive.
"For the IRS to say, 'We don't see the conservation
value,' it's ludicrous."
Conservation easements have preserved nearly 1 million
acres in the state, according to the Colorado Conservation Trust. The state
says it has handed out $193 million of tax credits for such easements in the
past six years.
Attorney Kueter said he believes 95 percent of the
conservation easements in the state are legitimate, but others are
questionable.
"We have tried to get the state Department of Revenue to
investigate those, without much success," Kueter said. "Right now, the
community thinks they can do what they want because nobody's checking."
But the IRS also is questioning appraisals that have been
approved by several state and federal agencies, Shafroth said.
Conservation easements work like this: An appraiser values
land at $100,000 if developed, or $40,000 if not developed. The owner donates a
conservation easement to a land trust. He keeps the land now worth $40,000
because nothing can be built on it, and gets a $60,000 state tax credit. He may
also get a $60,000 write-off on his federal tax return. That would cut his
federal taxes about $20,000 if he's in the 33 percent tax bracket.
To qualify for the state tax credit, owners must meet
requirements for the federal write-off. So the IRS definition affects both.
Conservation easements in
Colorado
Counties with the largest number of acres protected by
easements:
• Las Animas: 146,711 acres
• Costilla: 124,293 acres
• Routt: 51,796 acres
• Huerfano: 49,782 acres
• Saguache: 49,639 acres
• Total statewide: 917,875
acres