DEPARTMENT OF REGULATORY AGENCIES Division of Real Estate CONSERVATION EASEMENTS 4 CCR 725-4 [Editor’s Notes follow the text of the rules at the end of this CCR Document.] A-1 QUALIFICATIONS FOR CERTIFICATION TO HOLD CONSERVATION EASEMENTS Pursuant to and in compliance with Title 12, Article 61 and Title 24, Article 4, C.R.S. as amended, notice of proposed rulemaking is hereby given, including notice to the Attorney General of the State of Colorado and to all persons who have requested to be advised of the intention of the Colorado Division of Real Estate (the “Division” ) to promulgate rules, or to amend, repeal or repeal and re-enact the present rules of the Division regarding the conservation easement certification program. Section 1. Authority Section 2. Scope and Purpose Section 3. Applicability Section 4. Definitions Section 5. A-1 Qualifications for Certification to Hold Conservation Easements Section 6. Enforcement Section 7. Effective Date Section 1. Authority The Division of Real Estate adopts the following permanent rule entitled, Qualifications for Certification to Hold Conservation Easements , according to the authority found in section 12-61-720 (11) C.R.S.

Section 2. Scope and Purpose In 2008, Governor Bill Ritter, Jr. signed House Bill 08-1353 into law. This law effectively established the regulatory framework for conservation easement holders that accept a conservation easement donation for which a state tax credit is claimed. Pursuant to section 12-61-720(1), C.R.S., the Colorado Division of Real Estate, in consultation with the conservation easement oversight commission, shall establish and administer a certification program for qualified nonprofit and government entities that hold a conservation easement for which a tax credit is claimed. The purpose of the program is to establish minimum qualifications for certifying organizations to encourage professionalism and stability; and identify fraudulent or unqualified applicants as defined by the rules of the division to prevent them from becoming certified.

In determining whether to grant or deny certification, the Division of Real Estate and the conservation easement oversight commission may consider the following: the applicant’s process for accepting conservation easements, stewardship practices and capacity, finances, governance, unique circumstances, and any other information deemed relevant by the Division of Real Estate or the conservation easement oversight commission. Accordingly, the Division of Real Estate created an application for certification based on these considerations. The purpose of this rule is to establish the required minimum qualifications for certification. Section 3. Applicability This rule applies to any nonprofit entity and any government entity that hold conservation easements for which a tax credit is claimed pursuant to section 39-22-522, C.R.S. Section 4. Definitions 1) “Conservation easements” means conservation easements that have a charitable donation component. This includes full donation and bargain sale conservation easements. Section 5. A-1 Qualifications for Certification to Hold Conservation Easements 1) The Division may deny, refuse to renew, or revoke the certification of a conservation easement holder who fails to meet any of the following minimum qualifications: a) Organization i) The conservation easement holder:

(1) Meets the qualifications under section 170(h) of the federal “Internal Revenue Code of 1986,” as amended, and section 38-30.5-104 (2), C.R.S., to hold a conservation easement for which a state tax credit is claimed;

(2) Has a sufficient number of board members, staff, and/or volunteers to accomplish the work of the organization;

(3) Has a sufficient number of board meetings per year to accomplish the work of the organization; and (4) Is in good standing with the Colorado Secretary of State. b) Process: Conservation Easement Selection, Review and Approval i) The conservation easement holder has and follows reasonable policies and procedures for selecting conservation easements. These include, but are not limited to:

(1) Establishing and following selection criteria to identify conservation easements with a conservation purpose as defined by Section 170(h)(4) (A) of the federal “Internal Revenue Code of 1986,” as amended, and Treasury Regulations section 1.170A-14;

(2) Identifying and documenting the conservation values and the public benefits from protecting those values prior to accepting the conservation easement;

(3) Working with the conservation easement donor to identify and design the allowable uses, reserved rights, and prohibited uses for the conservation easement on an individual basis; and (4) Receiving and reviewing a baseline documentation report for the conservation easement before accepting the donation, and updating the report as needed. The baseline report documents the conservation values and condition of the property.

ii) The conservation easement holder has and follows reasonable policies and procedures for reviewing conservation easements. These include, but are not limited to:

(1) Performing proper due diligence on the title, water and mineral rights on the property before approving the transaction;

(2) Ensuring any liens or encumbrances are correctly subordinated or addressed in a manner so that the conservation rights set forth in the agreement will be ensured in perpetuity.

(3) Having and following a policy that each conservation easement of a phased project has a independent conservation purpose as defined by Section 170(h)(4)(A) of the federal “Internal Revenue Code of 1986,” as amended, and Treasury Regulations section 1.170A-14;

(4) Obtaining a legal review of the transaction appropriate to the complexity of the transaction;

(5) Using appropriate scientific expertise to substantiate the conservation values; and (6) Receiving and adequately reviewing a copy of the appraisal that was used to determine the fair market value of the property for Form 8283. iii) The conservation easement holder has and follows reasonable policies and procedures for approving conservation easements. These include, but are not limited to:

(1) Declining projects that do not have conservation value or appear to be fraudulent;

(2) Having the board approve all charitable conservation easement donations, or establishing policies delegating the authority to approve transactions to a qualified committee or other designee;

(3) Providing sufficient information to the board, a qualified committee or other designee for review before a charitable conservation easement donation is approved; and (4) Advising potential conservation easement donors that the organization does not guarantee the qualification of the conservation easement for tax credit purposes, and that they should seek their own legal, financial and tax advice.

c) Stewardship: Practices and Capacity i) The conservation easement holder has and follows reasonable policies and procedures to ensure the short- and long-term management of its conservation easements. These include, but are not limited to:

(1) Having adequate resources and policies in place to provide annual monitoring of each conservation easement held in Colorado, except for any conservation easement granted to a local government that did not involve a charitable donation.

(2) Monitoring all conservation easements on an annual basis, including visually inspecting the property and performing other types of monitoring actions as appropriate;

(3) Monitoring is performed and documented by a qualified individual, and reviewed by the board, a qualified committee or other designee; (4) Enforcing every conservation easement agreement, and properly addressing violations in a manner appropriate to the scale of the violation; (5) Amendments made to a conservation easement agreement do not result in a net loss of conservation value and do not create a private benefit to the donor; and (6) Preserving original and duplicate copies of necessary and important records, such as agreements, baseline reports, and appraisals, in a safe and secure manner.

ii) The conservation easement holder has the necessary personnel and financial capacity and policies and procedures to ensure the short- and long-term management of its conservation easements. These may include, but are not limited to:

(1) Establishing lasting dedicated stewardship and enforcement funds for the management and enforcement of every conservation easement held; (2) Only using the dedicated stewardship and enforcement funds for stewardship- and enforcement-related purposes, or other allowable uses established through written policies;

(3) Determining the approximate amount of stewardship and enforcement funds that will be needed for the short- and long-term management of all conservation easements that have a donation component; and (4) Collecting the stewardship and enforcement funds needed with all conservation easements that have a donation component, or collecting the required funds through other means, such as fundraising. d) Finance i) The conservation easement holder has and follows reasonable fiscal policies and procedures to ensure the transparent and responsible management of its assets. These may include, but are not limited to:

(1) Having the board review and/or regularly discuss the organization’s financial status, including the annual budget and any financial changes that have occurred; and (2) Having a qualified individual conduct a reasonable financial audit or other financial review on an annual basis.

e) Governance i) The conservation easement holder demonstrates it has and follows reasonable policies and procedures to ensure the responsible management of conflicts of interest and any transactions with insiders.

Section 6. Enforcement Conservation easement holders who violate this rule shall be subject to disciplinary action pursuant to the Division of Real Estate's authority set forth in section 12-61-720 (11), C.R.S. Disciplinary actions include, but are not limited to:

a) Revocation of certification;

b) Refusal to renew certification;

c) Denial of an application for certification; and d) Fines.

Section 7. Effective Date This permanent rule is effective July 1, 2009.

B-1 SEPARATION OF THE PAYMENT FOR THE INITIAL CERTIFICATION FEE Pursuant to and in compliance with Title 12, Article 61 and Title 24, Article 4, C.R.S. as amended, notice of proposed rulemaking is hereby given, including notice to the Attorney General of the State of Colorado and to all persons who have requested to be advised of the intention of the Colorado Division of Real Estate (the “Division” ) to promulgate rules, or to amend, repeal or repeal and re-enact the present rules of the Division regarding the conservation easement certification program. Section 1. Authority Section 2. Scope and Purpose Section 3. Applicability Section 4. Definitions Section 5. B-1 Separation of the Payment for the Initial Certification Fee Section 6. Effective Date Section 1. Authority The Division of Real Estate adopts the following emergency rule entitled, B-1 Separation of the Payment for the Initial Certification Fee , according to the authority found in section 12-61-720 (11) C.R.S.

Section 2. Scope and Purpose The Director of the Division finds that immediate adoption of this rule is imperatively necessary for the preservation of public health, safety or welfare and that compliance with the rulemaking requirements of section 24-4-103, C.R.S., applicable to non-emergency rules, would be contrary to the public interest. Without the immediate adoption of this emergency rule, the public’s interest is not served. Wherefore, the Director, pursuant to section 24-4-103(6), C.R.S. has an obvious and stated need to adopt this rule. Pursuant to section 12-61-720 (11), C.R.S., the Division shall have the authority to promulgate rules for the conservation easement certification program. The specific purpose of this emergency rule is to define a process in which an applicant for certification can pay the initial certification fee in two portions. Section 3. Applicability This rule applies to any nonprofit entity and any government entity that holds conservation easements for which a tax credit is claimed pursuant to section 39-22-522, C.R.S. Section 4. Definitions “Full application” means the organizational profile and the comprehensive application. Section 5. B-1 Separation of the Payment for the Initial Certification Fee The initial certification fee prescribed by the Division may be paid by the applicant in two payments accompanying the two parts of the full application. The first portion of the application fee is required to be submitted with the Organizational Profile . The second portion of the certification fee is required to be submitted with the Comprehensive Application .

Section 6. Effective Date This emergency rule is effective January 25, 2010.

_____________________________________________________ Editor’s Notes History Entire Rule eff. 07/01/2009.

Rule B-1 emer rule eff. 01/25/2010.