The Colorado Court of Appeals issued its opinion in Kowalchik v. Brohl on February 2, 2012.
Taxation—Conservation Easement Tax Credits—Interlocutory Review
In this taxation dispute involving conservation easement tax credits, defendant Barbara Brohl, the Executive Director of the Colorado Department of Revenue (DOR), petitioned for interlocutory review of the trial court’s finding that certain individuals do not fall within the statutory definition of “taxpayer.” The petition was granted.
In Colorado, a state income tax credit is allowed for a qualifying conservation easement created on real property that a taxpayer owns and donates to a governmental entity or charitable organization. Generally, a donor taxpayer may assign to transferees all or any portion of the tax credit generated by any donation. The donor taxpayer may generate only one such tax credit per year. A transferee taxpayer may purchase credits from an unlimited number of donors and claim an unlimited number of credits against a tax liability.
Plaintiffs are numerous conservation easement donors. In tax years 2005 and 2006, plaintiffs donated fourteen conservation easements 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 some or all of a conservation easement tax credit, a notice of disallowance, deficiency, or rejection of refund is sent to the donor of the easement who generated the credit (“tax matters representative” or TMR) and to any transferee who has used any portion of the tax credit. DOR disallowed the credits at issue in this case, sent plaintiffs notices disallowing the credits, and provided a notice informing them of the procedures created by CRS § 39-22-522.5 for resolution of tax credit disputes. Transferees are bound by the final resolution of disputes between DOR and the TMR.
Pursuant to CRS § 39-22-522.5(2), plaintiffs filed an amended complaint in the district court appealing DOR’s disallowance of the tax credits. Plaintiffs did not join the transferees. DOR moved to dismiss pursuant to C.R.C.P. 12(b)(6) or alternatively to compel plaintiffs to join the transferees pursuant to C.R.C.P. 19(a).
The trial court denied DOR’s motion. DOR moved the court to certify its order and several additional legal matters for interlocutory appeal under C.A.R. 4.2. The trial court granted the certification order with four questions for interlocutory appeal, and DOR sought interlocutory review under CRS § 13-4-102.1 and C.A.R. 4.2.
The Court or Appeals has discretion to grant an interlocutory appeal when (1) immediate review may promote a more orderly disposition or establish a final disposition of the litigation; (2) the order from which an appeal is sought involves a controlling question of law; and (3) that question of law is unresolved. The Court found these factors present in this case and granted DOR’s petition for interlocutory review, stating that a later opinion will address the merits.