KOWALCHIK v. BROHL

Colo. Court of Appeals, Div. A, No. 11CA2634, February 2, 2012: Grants request for interlocutory appeal of four issues of law of first impression in Colorado regarding tax treatment of purchase of conservation easement tax credits. A later opinion will address the merits.

In the case at trial, the plaintiffs collectively donated fourteen conservation easements over two years, “purportedly generating several million dollars worth of state tax credits. Plaintiffs then transferred credits to fifteen transferees, who claimed the credits on their respective state income tax returns or retained them for use against future tax liability”. If the DOR disallows a conservation easement tax credit, it is supposed to send notice to the donors and parties to whom the donor transferred the credit and who used the credit to against a tax liability on the transferee’s tax return. The donor, however, becomes the “tax matters representative” (TMR) who is “”responsible for representing and binding the transferees with respect to all issues affecting the credit”. The plaintiffs (donors) filed a complaint in the district court appealing DOR’s disallowance of the tax credits but did not join the transferees in the action. DOR moved to dismiss or in the alternative to compel plaintiffs to join the transferees. The Court of Appeals agreed to decide questions of law at issue in a lower court proceeding about the Colorado conservation easement tax credits because those issues involve “controlling and unresolved question of law”.

That set up issues of first impression:

(1) Whether transferees are included within the definition of “taxpayer” in Colorado statutes section 39-22-522(1);

(2) Whether every taxpayer, including every transferee, is liable for tax deficiencies, interest, and penalties for the improper claim of a conservation tax credit on his or her return pursuant to section 39-22-522(9);

(3) Whether transferees are necessary parties to a conservation easement tax credit appeal under section 39-22-522.5, who must be joined from the outset pursuant to CO Rules of civil Procedure (C.R.C.P.) 19(a); and

(4) Whether plaintiffs [the donors of the conservation easements] must personally serve their transferees with a summons and the complaint in accordance with C.R.C.P. 4, rather than merely mailing a notice to the transferees of their statutory right to intervene.

Decision available at http://www.cobar.org/opinions/opinion.cfm?opinionid=8381&courtid=1

 

1 comment to KOWALCHIK v. BROHL

  • [...] The Court wrote: “In this dispute involving conservation easement (CE) tax credits, this [same Court] granted the petition of defendant, Barbara Brohl, the Executive Director of the Colorado Department of Revenue (DOR), for interlocutory review of the trial court’s orders in favor of plaintiffs, holding that persons who purchased CE tax credits (transferees) from plaintiffs: are not within the statutory definition of “taxpayer” under section 39-22-522(1), C.R.S. 2011; have no tax liability for deficiencies, interest, and penalties for the improper claim of a tax credit; need not be joined as necessary parties to this action under C.R.C.P. 19(a); and may be given notice of this proceeding by mail rather than being personally served under C.R.C.P. 4. Kowalchik v. Brohl, 2012 COA 25, ¶ 1 (Brohl I). [...]