Markus v. Brohl

• Decision Date: 23 October 2014
• Docket Number: Court of Appeals No. 13CA1656
• Citation: 412 P.3d 647
• Parties: Ricky L. MARKUS and Kay L. Markus, married individuals and as tax matters representatives for Danny E. DeRose, Kerry J. DeRose, Michael W. Roumph, Mary Moser–Roumph, Adolph R. Padula, Bernadette L. Padula, Merle R. Manweiler, and Sherri L. Manweiler; Garrett J. Markus and Jade L. Markus, individually and as tax matters representatives for Merle R. Manweiler and Sherri L. Manweiler; Edward Lee Mayo and Kristie Mayo, individually and as tax matters representatives for John F. Carder, Daniel K. Direzza, and Katrena L. Direzza, Plaintiffs–Appellees, v. Barbara BROHL, Executive Director of the Colorado Department of Revenue, Defendant–Appellant.
• Court: Colorado Court of Appeals

412 P.3d 647

Ricky L. MARKUS and Kay L. Markus, married individuals and as tax matters representatives for Danny E. DeRose, Kerry J. DeRose, Michael W. Roumph, Mary Moser–Roumph, Adolph R. Padula, Bernadette L. Padula, Merle R. Manweiler, and Sherri L. Manweiler; Garrett J. Markus and Jade L. Markus, individually and as tax matters representatives for Merle R. Manweiler and Sherri L. Manweiler; Edward Lee Mayo and Kristie Mayo, individually and as tax matters representatives for John F. Carder, Daniel K. Direzza, and Katrena L. Direzza, Plaintiffs–Appellees,

v.Barbara BROHL, Executive Director of the Colorado Department of Revenue, Defendant–Appellant.

Court of Appeals No. 13CA1656

Colorado Court of Appeals, Div. III.

Announced October 23, 2014

Inman Flynn Biesterfeld & Brentlinger, P.C., Eric J. Voogt, Asher M.B. Ritmiller, Denver, Colorado, for Plaintiffs–Appellees

John W. Suthers, Attorney General, Grant T. Sullivan, Assistant Solicitor General, Eric T. Meyer, First Assistant Attorney General, Denver, Colorado, for Defendant–Appellant

Opinion by JUDGE DAILEY

¶ 1 A conservation easement (CE) "is a permanent restriction that runs with the land for the purpose of protecting and preserving the land in a predominantly natural, scenic, or open condition." Kowalchik v. Brohl, 2012 COA 25, ¶ 2, 277 P.3d 885 ; see also §§ 38–30.5–101 to—111, C.R.S.2014 (establishing the purposes and requirements for conservation easements).

¶ 2 In Colorado, a taxpayer may claim a state income tax credit, all or part of which is transferable to third parties and which may be carried forward for up to twenty years, in connection with a donation of a qualifying CE to a governmental entity or charitable organization. See § 39–22–522(2), (5), & (7), C.R.S.2014; see also § 39–22–522(4)(a)(I) (allowing taxpayer to claim 100% of the first $100,000 of CE value and 40% of any additional value, not to exceed a credit of $260,000).

¶ 3 The question presented in this case is: How long does the Colorado Department of Revenue (the Department) have to review the validity and value of CE tax credits? May the Department review the validity and value of those credits in each of the twenty years in which they may be claimed and carried forward? Or, must it complete its review within four years from the first time the credits are claimed?

¶ 4 On behalf of themselves and others to whom they had transferred CE tax credits, plaintiffs Ricky L. Markus, Kay L. Markus, Garrett J. Markus, Jade L. Markus, Edward Lee Mayo, and Kristie Mayo, took the latter position, with which the district court agreed. Because we too agree with that position, we affirm the district court's entry of summary judgment in favor of plaintiffs and against defendant, Barbara Brohl, the Executive Director of the Department.

I. Background

¶ 5 In 2004, three pairs of landowners—Ricky and Kay Markus, their sons, Garrett and Jade Markus, and Edward Lee and Kristie Mayo—created CEs on their lands, had them appraised, and sold them to a governmental entity (i.e., the Otero County Land Trust) for a portion of their appraised value. They attached to their 2004 state income tax returns documents notifying the Department that they were claiming CE tax credits and applying part of those credits against their 2004 income tax liability.¹ The landowners (hereafter, CE donors) carried forward the remainder of the claimed CE credits, some for their personal use, and some for the use of third parties, to offset income tax liabilities in future years.

¶ 6 On September 28, 2009, the Department disallowed the Mayos' entire claim of a CE tax credit primarily because of a purported deficiency in the appraisal upon which the Mayos relied. For the same reason, the Department, on April 13, 2010, disallowed the claims of CE tax credits by each pair of Markuses. Because of a four-year limitations period, the disallowances affected only the donors' use of claimed CE credits in the 2005–2008 tax years.

¶ 7 Rather than challenging the disallowances at an administrative hearing before the Department, the CE donors appealed them to the district court pursuant to § 39–22–522.5(2), C.R.S.2014.

¶ 8 The parties filed cross-motions for summary judgment. In their motion, the CE donors argued that the four-year limitations period of § 39–21–107(2), C.R.S.2014, had expired before the Department acted to disallow their tax credits. In this regard, they asserted that the limitations period had commenced on the entirety of their claimed CE credits when they first claimed the credits on their 2004 tax returns—which, under the law, would have been on April 15, 2005. See § 39–21–107(3).

¶ 9 The Department, however, asserted that the limitations period commenced each time a CE donor or transferee applied CE credit to his or her tax liability, and that it could evaluate the validity and extent of the original claims of CE credit for purposes of disallowing the use of credits for the 2005–08 tax years. In the alternative, it argued that summary judgment was inappropriate in any event because issues of material fact existed as to whether the limitations period was tolled by the filing of false or fraudulent tax returns by the CE donors.

¶ 10 The district court entered summary judgment in favor of the CE donors, concluding, on the primary point of contention, that, because of the uniqueness of Colorado's CE tax credit statute,

• the limitations period commences (as argued by the CE donors) against the entirety of the claimed CE credit "upon the donor's ... initial claim of the [CE] tax credit, rather than [as argued by the Department] upon a taxpayer's individual [yearly] use of the credit against his income";

• measured from April 15, 2005, the four-year limitations period had expired on the entirety of the asserted CE credits prior to the Department's disallowances of those credits; and,

• consequently, "the substantive validity and valuation of the [CE donor]'s original credit claim are not facts that [the Department] may redetermine for a closed income tax year to assess tax in an open year."

¶ 11 With respect to the Department's alternative ground for resisting summary judgment, the court concluded that there was insufficient evidence of fraud or an intent to evade taxes by the CE donors to create a genuine issue of material fact on the tolling issue.

II. Analysis

¶ 12 The Department contends that the district court erred in granting summary judgment to the CE donors based on its determinations that (1) the limitations period had expired with respect to the Department's ability to redetermine, for any tax year, the value and validity of the claimed CE tax credits; and (2) no genuine dispute of material fact existed as to whether the CE donors filed false or fraudulent tax returns.

¶ 13 " ‘The purpose of the summary judgment "is to permit the parties to pierce the formal allegations of the pleadings and save the time and expense connected with a trial when, as a matter of law, based on undisputed facts, one party could not prevail." ’ " Roberts v. Am. Family Mut. Ins. Co., 144 P.3d 546, 548 (Colo.2006) (quoting Mount Emmons Mining Co. v. Town of Crested Butte, 690 P.2d 231, 238 (Colo.1984) ). Because summary judgment is a drastic remedy, however, it is appropriate only where there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. C.R.C.P. 56(c) ; Sanchez v. Moosburger, 187 P.3d 1185, 1187 (Colo.App.2008).

¶ 14 With these general principles in mind, we address each of the Department's contentions.

A. Limitations Period for Challenging Claimed CE Credits

¶ 15 To resolve the Department's first contention, we must address the interplay between the general statute of limitations for tax matters, section 39–21–107(2), and a "statute of limitations" provision specifically addressing the subject of CE tax credits in section 39–22–522.

¶ 16 The general statute of limitations provides that "the assessment of any tax, penalties, and interest shall be made within one year after the expiration of the time provided for assessing a deficiency in federal income tax ...." § 39–21–107(2). Because the time for assessing a deficiency in federal income tax is three years, see 26 U.S.C. § 6501(a) (2012), the limitations period under section 39–21–107(2) is four years. See Dep't of Revenue Reg. 201–1, 1 Code Colo. Regs. 201–1:39–21–107(2).

¶ 17 The question, in this case, is what triggers the commencement of this four-year period.

¶ 18 Under federal law, each tax return is "the origin of a new liability," meaning that a new limitations period begins each time a tax return is received by the taxing authority. Comm'r of Internal Revenue v. Sunnen, 333 U.S. 591, 598, 68 S.Ct. 715, 92 L.Ed. 898 (1948) ; see Dingman v. Comm'r of Internal Revenue, 101 T.C.M. (CCH) 1562, at *7 (T.C.2011) (the federal statute of limitations begins to run for each tax year when the Internal Revenue Service (IRS) receives the taxpayer's return for that year). Because "each separate year [i] s a unit to itself," the IRS may "consider facts relating to taxes of other taxable years in order correctly to determine the amount of taxes for the years in question, but not to determine whether the tax for any other [limitations-barred] taxable year has been overpaid or underpaid." Phoenix Coal Co. v. Comm'r of Internal Revenue, 231 F.2d 420, 421 (2d Cir.1956) ; see also Barenholtz v. United States, 784 F.2d 375, 380–81 (Fed.Cir.1986) ("It is well settled that the IRS and the courts may recompute taxable income in a closed year in order to determine tax liability in an open year.").

¶ 19 Accordingly, the federal statute of limitations for the assessment of taxes, 26 U.S.C. § 6501(a), "bars [tax] assessments, not calculations" for tax years for which the limitations period has run. Barenholtz, 784 F.2d at 380 ; see also 26 U.S.C. § 6214(b) (2012) ("The Tax Court in redetermining a deficiency of income tax for any taxable year ... shall consider such facts...