State auditor: Conservation easement program too lax

The administration of the state’s conservation easement tax credit program is in need of a fix, the Office of the State Auditor said Tuesday.

An audit, the agency said, has found problems in several areas of the program, which been has been available to individual and corporate taxpayers since 2000.  

To help put matters back on track, the auditor’s office made 12 recommendations to the Department of Revenue, Division of Real Estate and Conservation Easement Oversight Commission, all of which share responsibility for administering the tax credit. 

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The audit found that the Department of Revenue’s tax examiners do not always sufficiently review tax credit filings, document those reviews or record tax credit data in a centralized database.  

For example, tax examiners pay little to no attention to the conservation purpose associated with a tax credit claim, even though state law prescribes specific uses — such as preservation of land for outdoor recreation or protection of fish, wildlife or plant habitats — for a conservation easement donation to qualify for a tax credit.  

Regarding appraisals, the audit found that the Division of Real Estate could improve its in-depth reviews of those appraisals to help identify and address problems before a tax credit is claimed.  According to the audit, the Division conducted in-depth reviews of only 46 percent of the total 223 tax-credit-generating conservation easement appraisals it has received since July 2008.

Easements promote land conservation. Owners of easements have the right to restrict how the land is used, and landowners may be able to claim a state income tax credit for all or part of a conservation easement they donate to governmental entities or nonprofit organizations.  

A tax credit, as distinguished from a tax deduction, is applied after the tax liability is calculated, and it results in a dollar-for-dollar reduction of the tax liability.  

Colorado currently allows a maximum credit of $375,000 per conservation easement donation.

As of 2009, Colorado landowners claimed nearly $640 million in state tax credits for about 3,200 conservation easements. In return, landowners restricted development rights and other land uses on about 925,000 acres of land.
 
In 2008, the General Assembly enacted legislation to address possible abuses of tax benefits associated with conservation easements. Before that point, federal and state tax audits had discovered, among other problems, misstatements of appraised land values, which led to landowners claiming inflated conservation easement tax credits.  
 
The full auditor’s report is available on the agency’s website, http://www.state.co.us/auditor