Conservation easement tax credits - dispute resolution - legislative declaration

(a) Colorado's conservation easement program is an important preservation tool used to balance economic needs with natural resources such as land and water preservation. Colorado's conservation easement tax credit and the federal tax deduction have allowed many farmers and ranchers the opportunity to donate their development rights to preserve a legacy of open spaces in Colorado for wildlife, agriculture, and ranching.

(b) Citizens throughout Colorado believe good, sound conservation practices are important to Colorado's quality of life, agriculture, and wildlife heritage;

(c) Colorado's conservation easement tax credit program was designed to give landowners an incentive to conserve and preserve their land in a predominantly natural, scenic, or open condition;

(d) While the department of revenue has allowed the great majority of claimed conservation easement tax credits, hundreds of claimed credits have been denied but have not yet been finally adjudicated through the existing administrative process;

(e) Due to the unique issues of confidentiality and multiple interested and related parties involved in the litigation of disputed conservation easement tax credits, the general assembly determines that it is appropriate to enact procedural changes that will provide for equitable and expedited litigation or resolution of these cases;

(g) The procedural changes set forth in this section shall apply to any dispute regarding a tax credit from a donation of a conservation easement made on or after January 1, 2000, for which a final determination has not been issued;

(h) It is the intent of the general assembly to provide taxpayers with incentives to waive an administrative hearing and proceed directly to a de novo appeal to the district court in accordance with the procedures set forth in this section. The incentives include waiver of the bond requirement and waiver of accrual of interest and penalties during the time the matter is on appeal to the district court.

(i) The general assembly strongly encourages the executive director of the department of revenue to agree to waive interest and penalties for tax matters representatives and credit buyers who have acted in good faith to resolve disputed conservation easement tax credits; and

(j) This section is intended to effect changes to the law that are procedural or remedial in nature. The procedural changes set forth in this section shall not be construed to take away or impair any vested right acquired under existing law, or to create any new obligation, impose any new duty, or attach any new disability with respect to any past transaction or consideration. The provisions of this section are designed to address matters of public policy related to the fair and equitable resolution of conservation easement tax credit disputes in accordance with applicable laws and court rules.

(2) For any credit claimed pursuant to section 39-22-522, for which a notice of deficiency, notice of disallowance, or notice of rejection of refund claim has been mailed by the department of revenue as of May 1, 2011, but for which a final determination has not been issued before May 19, 2011, the tax matters representative may elect to waive the administrative process provided by section 39-21-103 and appeal the notice of deficiency, disallowance, or rejection of refund claim directly to a district court in accordance with the following provisions, which also apply to an appeal filed in accordance with subsection (6) of this section; except that paragraphs (a), (c), and (d) of this subsection (2) shall not apply to such an appeal:

(a) The tax matters representative shall make the election by mailing a written notice of appeal that includes the certified signature of the tax matters representative to the executive director and the district court for the county that has venue in the case as specified in paragraph (b) of this subsection (2) on or before October 1, 2011. The notice shall be sent by certified mail.

(b) Appeals brought pursuant to this section shall be filed in the district court for the county where the land encumbered by the easement is located. At the discretion of the chief justice, the state may be divided into three regions for purposes of consolidating appeals, with each region consisting of the following judicial districts: Region Judicial Districts Region 1 1st, 2nd, 8th, 13th, 17th, 18th, 19th, and 20th Region 2 3rd, 4th, 10th, 11th, 12th, 15th, and 16th Region 3 5th, 6th, 7th, 9th, 14th, 21st, and 22nd

(c) If a tax matters representative elects to waive the administrative process and appeal directly to a district court pursuant to this subsection (2), no surety bond or other deposit shall be required in connection with the appeal. This paragraph (c) shall not apply to tax matters representatives who do not elect to waive the administrative process.

(d) If the tax matters representative elects to waive the administrative process and appeal directly to a district court pursuant to this subsection (2), additional interest and penalties shall cease to accrue while the matter is on appeal before the district court, beginning with the date the notice of appeal is received by the district court. This paragraph (d) shall not apply to tax matters representatives who do not elect to waive the administrative process.

(e) Upon receipt of the notice of appeal by the court, the executive director shall be deemed to be a party to such appeal, and the clerk of the district court shall docket the cause as a civil action. The appellant shall cause summons to be issued and cause the same to be served upon the executive director in accordance with the manner provided by law in civil cases. The answer of the executive director shall contain a brief, plain statement of the legal issues, a detailed itemization of the total amount in controversy, and any proposal regarding the joinder or consolidation of related parties and appeals.

(f) Any transferee of the tax credit or any other person who has claimed a tax credit related to the tax matters representative's claimed conservation easement tax credit shall be allowed to intervene as a matter of right pursuant to the Colorado rules of civil procedure.

(g) Notice of the date of any hearing or any phase of the trial shall be mailed to the tax matters representative, any other party, and to the executive director at least thirty days prior thereto.

(h) Jurisdiction to hear and determine appeals pursuant to this section is conferred upon the district courts of this state. A court, in its discretion, may allow for the assertion, consolidation, and settlement of any claims at law or at equity, for the intervention of additional parties, and for such other matters as the court deems appropriate in accordance with any applicable laws or court rules governing such issues; except that resolution of disputes between private parties may be limited to the third phase of the case as described in paragraph (m) of this subsection (2). In determining matters regarding joinder or consolidation, the court may consider common issues of law and fact, including but not limited to ownership of the property subject to the easement, relationships of taxpayers, and location of the easements.

(i) Following the court's order identifying the parties and consolidating cases and parties, the court may hold a hearing to determine the validity of the conservation easement credit claimed pursuant to section 39-22-522 and to determine any other claims or defenses touching the regularity of the proceedings. The court shall determine whether the donation is eligible to qualify as a qualified conservation contribution. The court may set an expedited briefing schedule and give the matter priority on the docket. The court may order preliminary discovery, limited to validity of the easement credits and any other claims or defenses raised at this stage of the proceeding.

(j) Upon a determination of validity of the credit as claimed, the court may schedule a case management conference with all parties to the proceeding. Any case management conference shall address the proceedings as set forth in paragraph (m) of this subsection (2). Prior to the case management conference, the court may order all parties to make the following disclosures:

(I) The department of revenue shall disclose, consistent with any orders of the court, individuals with knowledge of, and documents related to:

(A) Notices to the tax matters representative disallowing the conservation easement credit;

(B) Notices to any taxpayer of deficiency or rejection of claim for refund;

(C) Correspondence with the tax matters representative or donee of the easement as well as any party to the conservation easement tax credit action;

(D) Appraisals and review appraisals or other expert reports used in connection with review of the tax matters representative's application for tax credit;

(E) Tax returns of the tax matters representative, transferee, or any party to the conservation easement tax credit action, for relevant tax years; and

(F) Statements of adjustment.

(II) The tax matters representative shall disclose individuals with knowledge of, and documents related to:

(A) Tax returns for the relevant tax years;

(B) The appraisal used to determine the value of the easement;

(C) The conservation easement deed and amendments;

(D) Agreements between the tax matters representative and the transferees; and

(E) Any other expert report, basis, or other evidence relating to the valuation and substantiation of the amount of the underlying easement or credit.

(III) Transferees or other persons claiming all or part of the conservation easement tax credit who are parties to the conservation easement tax credit action shall disclose individuals with knowledge of, and documents related to:

(A) Agreements related to the transfer of credits;

(B) Tax returns for the relevant tax years; and

(C) Any other expert report, basis, or other evidence relating to the valuation and substantiation of the amount of the underlying easement or credit.

(k) The court may make any order it deems appropriate to control and limit discovery to avoid unnecessary duplication between or among parties, including setting such limitations in accordance with the phases of the proceedings as set forth in paragraph (m) of this subsection (2).

(l) In advance of the trial date, the court may require the parties to confer and submit a proposed trial management order to the court.

(m) After a determination pursuant to paragraph (i) of this subsection (2) of the validity of the credit as claimed, the court shall resolve all remaining issues as follows:

(I) The first phase shall be limited to issues regarding the value of the easement.

(II) The second phase shall be limited to determinations of the tax, interest, and penalties due and apportionment of such tax liability among persons who claimed a tax credit in relation to the conservation easement. The conservation easement tax credit action shall be final at the conclusion of the second phase as to the department of revenue and as to any taxpayer, transferee, or other party with regard to that party's tax credit dispute with the department of revenue.

(III) The third phase shall address all other claims related to the conservation easement tax credit, including those between and among the tax matters representative, transferees, other persons claiming a tax credit in connection with the donation, and any third party joined as a party to the action. The department shall not be required to participate in or be a party to this third phase. Any participation in these proceedings by parties other than the tax matters representative, transferees, or other persons who have claimed all or part of a conservation easement tax credit is limited to this third phase.

(n) The district court shall hear the appeal in accordance with the Colorado rules of civil procedure and the rules of evidence.

(o) The chief justice of the supreme court may designate judges to hear appeals brought pursuant to this subsection (2), and may determine that only judges so designated may hear such appeals. For the convenience of the parties and in order to facilitate the use of available court facilities, hearings may be conducted at the discretion of the court in any county within the region for which venue has been established for a case pursuant to paragraph (b) of this subsection

(2).

(p) The district court shall enter judgment on its findings. The court shall have the authority to establish the amount of any deficiency and to waive or otherwise modify the amount of any interest, penalties, or other amounts owed. The court shall indicate in any order whether the judgment of the court is a final judgment subject to appeal as to any party.

(q) It is the intent of the general assembly that any appeals brought pursuant to this subsection (2) shall be expedited to the extent practicable and administered in the manner deemed most efficient and fair by the courts.

(3) A tax matters representative who does not make an election to waive a hearing pursuant to subsection (2) of this section and appeal directly to a district court may send a written request for hearing and final determination by certified mail to the executive director on or before October 1, 2011. If a tax matters representative files a request pursuant to this subsection (3), the executive director shall issue a final determination on or before July 1, 2014, unless the executive director and the tax matters representative mutually agree in writing to extend such date to a specified date. The executive director shall send a copy of the final determination to the tax matters representative by certified mail on or before July 1, 2014. If the United States post office returns the final determination as undeliverable by certified mail, the department shall then mail the final determination in accordance with section 39-21-105.5. This subsection (3) shall apply only to those tax matters representatives for which a notice of deficiency, notice of disallowance, or notice of rejection of refund claim has been mailed by the department of revenue as of May 1, 2011, but for which a final determination has not been issued before May 19, 2011.

(4) The executive director shall issue a final determination on or before July 1, 2016, for any tax matters representative who does not make an election to waive a hearing pursuant to subsection (2) of this section or file a written request for final hearing and final determination with the executive director pursuant to subsection

(3) of this section. The executive director shall send a copy of the final determination to the tax matters representative by certified mail on or before July 1, 2016. If the United States post office returns the final determination as undeliverable by certified mail, the department shall then mail the final determination in accordance with section 39-21-105.5. If a tax matters representative does not make an election to waive a hearing pursuant to subsection

(2) of this section or file a written request for final hearing and final determination with the executive director pursuant to subsection (3) of this section, any person who has claimed a credit or who may be eligible to claim a tax credit in relation to the tax matters representative's donation may petition the department on or before November 1, 2011, to change the tax matters representative's designation. The executive director shall promulgate rules on or before September 1, 2011, specifying the procedures for a change to the tax matters representative's designation when the executive director determines that the tax matters representative is unavailable or unwilling to act as the tax matters representative. If the department grants the petition, the new tax matters representative may file an appeal pursuant to subsection (2) of this section or file a written request for final hearing and final determination with the executive director pursuant to subsection

(3) of this section within thirty days of the department's order regarding the petition. This subsection (4) shall apply only to those tax matters representatives for which a notice of deficiency, notice of disallowance, or notice of rejection of refund claim has been mailed by the department of revenue as of May 1, 2011, but for which a final determination has not been issued before May 19, 2011.

(5) In order to expedite the equitable resolution of requests for an administrative hearing regarding any conservation easement tax credit, avoid inconsistent determinations, and allow the executive director or the executive director's designee to consider the full scope of applicable issues of law and fact, the executive director or the executive director's designee shall have discretion to issue orders as set forth in paragraphs (a) to (e) of this subsection (5) as follows:

(a) To consolidate cases involving common or related issues of fact or law. In identifying related cases, the executive director or the executive director's designee may consider any common issues of law or fact, including but not limited to common ownership of the property subject to the easement, relationships of the taxpayers, and location of the easements.

(b) To issue a final order finding that a case cannot reasonably be resolved through the administrative process and transferring jurisdiction of the case to the district court in accordance with subsection (2) of this section. Such a final order may issue for reasons including but not limited to a waiver of administrative process pursuant to paragraph (a) of subsection (2) of this section by another tax matters representative where consolidation would otherwise be appropriate pursuant to paragraph (a) of this subsection (5). Prior to issuance of such a final order, the parties shall have the opportunity to file written briefs addressing the proposed transfer.

(c) If a tax matters representative fails to appear at a hearing or the tax matters representative has failed to adequately participate in such hearing, including but not limited to a failure to file the required pleadings or to appear at a scheduled conference, the executive director may without further proceedings issue a final determination.

(d) To invite participation in the administrative process by any person who may be affected or aggrieved by a final determination, including but not limited to transferees. Such participation shall include the right to be admitted as a party to a hearing. Upon the person's filing of a written request setting forth a brief and plain statement of the facts that entitle the person to be admitted and the matters to be decided, the executive director or the executive director's designee shall have the authority to admit such person for limited purposes. This process shall be available only to persons who have claimed a credit or who may be eligible to claim a tax credit in relation to the conservation easement.

(e) If a tax matters representative has not provided any document related to the credit that was required to be provided as part of the taxpayer's return, including the return itself, or, if requested by the department for conservation easements donated prior to January 1, 2014, a copy of the complete appraisal obtained at the time of donation, the department may send a written request to the taxpayer for such document. Failure to provide the requested documents within sixty days of any such request shall constitute grounds for the issuance of a final determination denying the credit.

(6) For any tax matters representative for which the executive director issued a final determination on or after May 1, 2011, the tax matters representative may appeal the final determination of the executive director pursuant to the provisions of section 39-21-105. The procedure governing such appeal shall be in accordance with the provisions of subsection (2) of this section; except that paragraphs (a), (c), and (d) of said subsection (2) shall not apply. If a tax matters representative fails to file a timely appeal pursuant to this subsection (6), any person who has claimed a credit or who may be eligible to claim a tax credit in relation to the tax matters representative's donation may petition the department to change the tax matters representative's designation within ten days after the final date for filing an appeal. The executive director shall promulgate rules on or before September 1, 2011, specifying the procedures for a change to the tax matters representative's designation when the executive director determines that the tax matters representative is unavailable or unwilling to act as the tax matters representative. If the department of revenue grants the petition, the new tax matters representative may file an appeal pursuant to the provisions of this subsection (6) within thirty days of the department's order regarding the petition.

(7) If the executive director fails to issue a final determination on or before the dates specified or agreed to in subsection (3) or (4) of this section, the authority of the executive director to dispute the claim of the credit shall be waived, the full amount of the credit in dispute shall be allowed, and no interest or penalties shall be imposed upon such amount.

(8) Repealed.

(9) The executive director shall send a notice to each tax matters representative eligible to waive a hearing and appeal a notice of deficiency, notice of rejection of refund claim, or notice of disallowance to a district court pursuant to subsection (2) of this section to notify the tax matters representative of the provisions of this section. The notice shall be sent by certified mail to the tax matters representative's last-known address on or before July 1, 2011. If the United States post office returns the notice as undeliverable by certified mail, the department shall then mail the notice in accordance with section 39-21-105.5. The notice shall not be included with any other mailing and shall include the words Important Tax Document Enclosed on the exterior of the mailing. The executive director shall further provide notice of the provisions of this section on the department of revenue's website and by such other means as the executive director deems appropriate. The executive director shall maintain adequate records to verify compliance with the provisions of this subsection (9).

(10) If the executive director makes a determination that the tax matters representative has transferred a disputed credit to another person who has not claimed the credit or that a person who claimed or may claim a disputed credit pursuant to section 39-22-522 cannot be identified or located, the executive director shall provide notice to such person as follows:

(a) The executive director shall file an affidavit with the district court having jurisdiction over an appeal of the credit setting forth that the executive director has made diligent inquiry and has been unable to locate such person.

(b) The district court shall then order a notice to be published by the department of revenue in some local newspaper of general circulation named by the judge and on the department's website. The notice shall identify the property that is subject to the conservation easement and the date of the donation, and shall explain the right of the person to request joinder in the action on the disputed credit before the court, the time and place at which such request must be filed, and the title and address of the court at which the request must be filed.

(11) If a tax matters representative proceeds with the hearing process before the executive director rather than appeal to a district court pursuant to subsection

(2) of this section and either the tax matters representative or one or more transferees pays an amount on or before June 30, 2012, that satisfies a deficiency in an amount agreed to by the department of revenue for the tax owed by the tax matters representative or the transferee, all additional amounts of penalties and interest owed shall be waived.

(12) and (13) Repealed.

(14) Prior to the issuance of a final determination or the conclusion of an appeal of a notice of deficiency, notice of disallowance, or notice of rejection of refund claim for a tax credit claimed by a tax matters representative or a transferee pursuant to section 39-22-522, the executive director shall cease all actions to collect any amount of the disputed taxes, interest, or other charges asserted to be owed. The executive director shall provide notice of the provisions of this subsection (14) in accordance with subsection (9) of this section.