OUR VIEW: Callous, uncaring death tax's impact

Gary Walker and his family built a 60,000-acre cattle ranch, and he stands to lose it all to the death tax.

Walker’s Turkey Creek Ranch borders Fort Carson in Pueblo County. Part of the ranch is under conservation easement bought by Fort Carson as a buffer.

Like most family ranches, Walker’s is partly owned by his aging parents. After they die, Walker will owe a death tax calculated on their share of ownership.

Estate tax is calculated on the “fair market value” of the item at the time the owner died. Real estate appraisal is not a science. It’s all too easy to fudge the figures to the detriment of the landowner. A number of Colorado landowners and appraisers are under scrutiny and some have been criminally charged for allegedly inflating the values of lands placed under conservation easement in order to qualify for tax benefits.

In this case, the opposite is true. Walker’s land, like many rural properties, is being appraised at an inflated value so the government can collect more death tax.

An ordinary land transaction involves a willing buyer and seller, each having an interest in the valuation of the property. The owner wants the highest possible appraisal; the buyer wants the lowest. The rational compromise, long established by the appraisal industry, has been to assign the fair market value based on the “highest and best use” that’s legally permissible.

When it comes to the estate tax, the system of appraisal is grossly unfair. It typically involves an owner with no desire to sell or develop the property, and motivation to see the property valued as low as possible. The federal government has all the power and wants the property valued as high as possible in order to collect more taxes. The government additionally controls the appraisal process and assumes the right to dictate to the property owner what the land is worth.

This fundamentally transforms the buyer/seller relationship into a coercive, involuntary transaction that’s rife with conflict of interest.

Walker’s trouble began with a hostile appraisal that fictionally converted the value of his family’s ranch from about $100-$200 an acre, as desert grazing land, to $2,000 an acre as a potential residential development. The tax will bankrupt him and force a sale of the 60,000-acre ranch at a loss — all because the government has decided someone might someday develop it.

The true value of Walker’s land, as it is used today, is ten times less than the government says. Like most family ranchers, Walker has no desire to develop the land. He wants to keep the land in agricultural production. But Walker will be penalized and dispossessed of his life-long home, on the fanciful premise that he might one day develop it, so he ought to pay estate tax on the value of that future potential development right away.

This brings us to the cruelest irony of all: The IRS forces residential development of irreplaceable agricultural property because few heirs can afford the taxes without exercising the development option, or without selling to someone who will. The system counters the conservation of irreplaceable agricultural lands desired by everyone from environmentalists, to the general public, to county commissioners, to the president of the United States.
There is a small hope for Walker and others in this dilemma. The IRS knows, though they are loathe to admit, that their make believe appraisals are vulnerable in court. The law says the death tax is owed on the value of the property as it exists at the moment of the owner’s death. It is only the inertia of the appraisal industry and deliberate misuse by the IRS that have perpetuated this injustice.

If strongly challenged, the IRS will often back down on grossly unfair appraisals in order to avoid scrutiny by Congress, the courts and the public.

Walker and all other land heirs abused by the IRS appraisal system should demand their day in court. They should lobby their representatives, and educate the public, in order to change this egregious injustice. — By Seth Richardson, for the editorial board
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Editorial opinions have no connection with The Gazette’s news division and do not express the views of all Gazette associates.