Client pressure can come in many different forms. Comments below are from a recent article on a different kind of client pressure. In this case, the pressure to inflate results in the tax payer getting a bigger deduction.
A lucrative scheme to not develop land: Easement abuse can shortchange state. It's high time the Colorado legislature got a grip on the "conservation easement" program, which is costing the state tax revenues at an ever increasing rate.
As Rocky Mountiain New reporter Ann Imse noted the other day, the loss of state income taxes has risen from $2.3 million in 2000, when the program began, to $7.5 million in 2002, to $57.3 million in 2004 and to $85.1 million in 2005.
That kind of exponential growth in lost revenue is not what lawmakers had in mind. Something's wrong somewhere. The predictability of revenues gained or lost is important to the state's budgeting process.
The money is going out in tax credits to people who have managed to sell or donate the development rights to their land to Great Outdoors Colorado or to any of the numerous private land trusts. These groups are supposed to ensure that the owners - who in most cases continue to control the land and can restrict public access to it - never develop it. Click below to read on . . .
The problem is, no one seems to know exactly how much land has been preserved or where it is. The Department of Revenue has the raw information in its income tax returns but hasn't compiled it. It should, even if it takes a special appropriation to pay for the job.
Only when the public can review the open space preserved can it decide whether the program is worth the cost.
Even proponents admit that some people have been gaming the system. There are several ways to do it: Hiring an appraiser to inflate the value of the land whose development rights are being forfeited, for instance (at least one appraiser has already been caught at that); or granting easements to land that is not and may never be subject to development.
And then there's the effect of the secondary market in tax credits. It is apparently helping kick the figures way up.
Here's how it works. Say you get a $100,000 income tax credit on your donated easement on open space. But your adjusted gross income is only $50,000. Your state tax bill, then, would be about $2,350. You can't claim a credit larger than that in a given year. It would take years to get the entire credit.
But you're allowed to sell the credit. Some wealthy citizen with a six-figure tax liability may offer you, say, $85,000 for your $100,000 credit. You get the $85,000 in cash now and the buyer can claim a $100,000 credit on his state taxes though he only paid $85,000. It's a win-win - except perhaps for the state.
A recent bill reduced the tax credit from dollar-to-dollar to 50 cents. But the cap on how much a person can claim on one easement was raised from $260,000 to $375,000, said Will Shafroth of the Colorado Conservation Trust. Thus the lost revenues aren't likely to shrink.
We have supported easements as one way of preserving open space for little or no cash outlay. But there clearly have to be more controls - or perhaps a cap on how much in credits the state will allow each year.
The legislature might decide it wants to surrender $85 million a year in revenues to preserve open space. But it better figure out first exactly what it's getting for the money.
Steve Smith, this blog poster, is interested in examples of client pressure of all kinds, specifically in written requests, to include in his book on Predatory Lending, Client Pressures and Appraisal Frauds. Donation's are welcome to replace the Grant from The Appraisers Research Foundation, The Appraisers Research Foundation is a 501 c 6 not-for-profit foundation. The foundation's purpose is to provide grants for research benefiting all of the disciplines of the appraisal profession. http://www.appraiserresearch.org/
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