Wednesday, September 15, 2010



Denver Mayor John Hickenlooper, the self described humble brew pub owner who is now seeking to continue the failed agenda of Governor Bill Ritter, has been exposed by KMGH-TV Channel 7 as someone who unsuccessfully tried to exploit conservation tax easments. The IRS ended the Hickenlooper tax evasion scheme and demanded $52,000 in back taxes in order to avoid further action.
Hickenlooper Returned Tax Breaks To IRS
IRS Questioned Land Easement That Allowed Mayor To Write-Off $1.1 Million

Arthur Kane and Tony Kovaleski, CALL7 Investigators
September 15, 2010

DENVER -- Mayor John Hickenlooper paid back $52,486 to the Internal Revenue Service in 2008 because of questionable conservation tax easements he participated in over the past decade, CALL7 Investigators have learned.

After CALL7 Investigators started questioning the easement's value, Hickenlooper campaign staff provided 7News with a letter from the IRS telling Hickenlooper he could settle a claim to avoid litigation.

"This letter is to inform you that (the IRS) has considered the federal tax implications of a group of returns reflecting charitable contributions of conservation easements in the state of Colorado," the IRS letter said. "Because your conservation easement is within that group, the IRS proposes to resolve the issue(s) related to the conservation easement contribution claimed on your federal income taxes for 2002, 2003, 2004 and 2005 ... (the IRS) has concluded the settlement proposed is an equitable resolution of the issue(s)."

The letter also warns that Hickenlooper should not expect a more "favorable" resolution and if Hickenlooper does not agree to the terms he may receive a "less favorable" outcome.

Hickenlooper's more than $2.7 million in charitable contributions over 23 years have been a source of questions since he released his tax returns. Hickenlooper has refused to discuss the charities he contributed to, saying he does not want to pull them into a political race.

CALL7 Investigators have found that nearly half of those contributions and the corresponding deductions were from to the land easements.

Hickenlooper said counting easements as charitable contributions is not misleading.

"What we did was we gave away something of significant value," Hickenlooper said.

The issues centers on a land deal Hickenlooper and a business partner were involved in 10 years ago.

In 2000, Hickenlooper and a partner completed a land swap with the U.S. Forest Service, trading about 590 acres of land in six counties for 660 acres of forest service land in Park County a few miles east of Bailey.

The forest service valued the land it received in the trade at $1.07 million and the land provided to Hickenlooper and his partner was valued at $884,000, according Forest Service records. The Forest Service paid Hickenlooper’s partner, who had the power of attorney to act for Hickenlooper, the difference, $190,000, in cash, forest service records show.

The land Hickenlooper and his partner received was appraised during the swap at an average of less than $1,400 an acre, the forest service appraisal showed.

Two years later, Hickenlooper took about 106 acres of the land to the Nature Conservancy, agreeing to a conservation easement that would ban any development on the land other than three small buildings or cabins, easement records show. At that point the land was appraised at more than $6,000 an acre.

Hickenlooper was able to write off 53 percent of the value of easement off his federal taxes based on the higher per acre valuation, according to public easement records. That year Hickenlooper's tax return shows a $410,000 non-cash charitable write-off that his staff confirmed was from the easement.

In 2003, 2004 and 2007, Hickenlooper put easements on the rest of his share of the property, records show. He received a total of more than $1.1 million in federal tax write-offs for the easements, according to interviews and tax returns Hickenlooper provided.

Hickenlooper declined to say how much he received in state tax credits. But based on his federal write-offs, CALL7 Investigators' conservative estimate is that Hickenlooper received in excess of $100,000 in state tax credits. According to his city financial disclosures, Hickenlooper sold credits to an entertainment executive in 2004 or 2005. Hickenlooper declined to say how much he received for the credits.

For the easements, Hickenlooper took land the forest service valued at an average of $1,339 an acre and hired an appraiser who valued the land at more than $6,000 an acre, Hickenlooper confirmed to CALL7 Investigator Tony Kovaleski.

“Through public records, our calculation is that piece of property appreciated more than 400 percent in just two years?” Kovaleski asked. "That's a huge number.”

"It is, you know,” Hickenlooper said.

“How did that happen?" Kovaleski asked.

“Well in real estate part of the way home builders see it is they buy a large piece of land, a ranch or something like that, and they break it to smaller parcels. The moment you break into smaller parcels you suddenly dramatically increase,” Hickenlooper said.

Hickenlooper’s staff said about 70 acres of the land he received from the forest service was sold for about $7,500 an acre in 2006.

"Is there anything about this deal that smells?" Kovaleski asked.

“No, I don’t think anything smells about this deal,” Hickenlooper said. “I think we're a straight forward transaction here where we tried to save the land and make sure it stays in its natural state"

During the last decade, conservation easements become controversial because some land owners inflated land values to increase tax write-offs and take state tax credits that could be sold for about 80 percent of their value. State tax credits allow a person to write off dollar for dollar any taxes owed to the state.

There have been state and federal investigations as well as a grand jury formed by the attorney general. The legislature passed a law passed in 2008 that required the state to certify new easements.

Hickenlooper's appraiser, Mark Weston, said Hickenlooper's appraisal was not inflated.

"There have been abuses of this program," said Weston, who came to Hickenlooper's interview with 7News at the request of the mayor. "This is not one of them."

"The IRS ultimately questioned your appraisal?" Kovaleski asked.

"It doesn't mean my appraisal is wrong," Weston said. "It means some of the unbiased -- let me change that -- it means some of the biased employees of the Internal Revenue Service chose to disagree with some of the specifics of my appraisal. I accept that."

Hickenlooper said he hired Weston because of his reputation as a top appraiser to make sure his conservation easements were done right, but he conceded that the IRS investigated his easement as part of a larger review.

“The IRS investigated this deal,” Kovaleski said. “Why?”

“They did a sweep of 500 different pieces of real estate,” Hickenlooper said. “So they did an audit of what the appraisers, the appraisals of all these different properties and are the appraisals too high too low. Obviously, they never think they're too low, they think they're too high."

“Did you return some of your tax breaks to the IRS?” Kovaleski asked.

“Yeah, in that one year I think we returned something like 10 percent or 20 percent something like that,” Hickenlooper said.

“Did you admit any wrongdoing?” Kovaleski asked.

“No,” Hickenlooper said. “We were not fined. There was no penalty. There was no legal issue.”

Hickenlooper said he was approached by a neighbor of the land in question to protect it because developers were planning to build as many as 18 homes on the property.

Hickenlooper said he and his partner paid the developers more than twice what the land was worth to make the developers go away because Hickenlooper wanted to protect the property and build a mountain home. His campaign provided documents showing Hickenlooper and his partner paid $1.7 million to take the developers' place in the land swap.

It's important to note that Hickenlooper provided substantial non-public documentation to 7News, including his tax returns and other documents. His Republican challenger, Dan Maes, has refused to release his tax returns and other information to the general media.

American Constitution Party candidate Tom Tancredo released five years of tax returns to Denver area talk show hosts, but could not immediately provide them to 7News.