DENVER—State officials have launched an investigation into alleged abuses in a program that allows farmers and ranchers to reap tax benefits in exchange for promising to not develop a portion of their land.
The Department of Regulatory Agencies announced Tuesday that about 30 subpoenas have been issued to those involved in conservation easement transactions.
Department Director D. Rico Munn says use of the program has jumped from $2.3 million in state tax credits in 2001 to $85.1 million last year. He says that is fueled partly by a change in 2003 that allowed the credits to be transferred.
Two areas where officials have received complaints about are in the appraisal process, where the land is valued, and in the trading of the tax credit for those who can’t directly benefit from it.
“I hate to use the term fraudulent but if it fits we may need to apply it,” Munn said during a news conference.
Under the program, property owners get federal and state tax breaks by granting conservation easements that guarantee the land will not be developed. Division of Real Estate Director Erin Toll said the easements help maintain habitat for deer, elk and other wildlife along with scenic vistas across the state by protecting the land from development.
Under state law, property owners who don’t have enough income to benefit from the $100,000 to $375,000 conservation easement tax benefit can sell that to a land trust or other charitable group in what is an unregulated security under Colorado law, state Securities Commissioner Fred Joseph said.
Toll said her division is examining the transactions from potentially unscrupulous appraisers who may have overvalued the land set aside for an easement, while Joseph said his division is examining those who trade in them.
Joseph said some brokers have promised returns on the tax credits of up to 60 percent.
The transferable tax benefit helps ranchers and farmers, and other property owners, who are sitting on valuable land to convert it into cash while also getting to keep the land.
“We’re certainly telling people look, we’re looking into this and don’t go jumping on this train,” Munn said.
Colorado Coalition of Land Trusts, a nonprofit that supports the easements, estimates some 1.2 million acres of land are protected under the program and up to 500 sales of tax benefits happen each year. They note how in some cases, some landowners have subdivided their land into up to 20 parcels to take multiple benefits that could cost the state millions in lost tax revenue.
“We absolutely support the state cracking down on this,” said Jill Ozarski, executive director of the group.
A bill supported by the group that was passed this year tightened the tax benefit by setting standards for appraisers, requiring applicants to disclose more information about the purpose of their easement, and requiring charitable groups to disclose how many easements they hold.
Toll said she hoped the investigation would be completed in six months. Names of those being investigated would not be released.
Those who violated the law face fines, license suspensions or revocations, and referral of their case to federal tax authorities and the state attorney general’s office for possible criminal prosecution.
