How do you evaluate trees that are dying are that have died in a new development.Here's the senario:A new upper scale neighborhood is being built in an old pecan orhard there has been no tree preservation to speak of, the development started about 3 years ago and now I'd say about 80% of these trees are dying back, besides the decline there are safety issues that will arise. So the new homeowners move in the trees look a little sick and maybe they will have a company trim and fertilize the trees....no response, then I get called in. In most cases the people bought the house with the trees included in the equation.So one of my questions is when doing an evaluation do you start from a pre-construction point of veiw or a post-construction veiw? Would this senerio be an unexpected loss for tax purposes? Has anyone drawn up a proffesional letter to mail out to builders or developers that I could look at? Thanks, Ken

Reply to post by Ken Six, on December 16, 1998 at 20:27:26:

Ken:

If the retention of the trees were used as a factor in determining the price of the new homes, there must be some basis for determining their added value. If that were the case I would first work to determine tree value based what it(they) added to the price of the house and lot.

I would also compare this to a 'what if' scenerio: What would have been the value of the trees based on the Trunk Formula method if they had not been damaged/killed by construction impacts.

Reply to post by Ken Six, on December 16, 1998 at 20:27:26:

Ken,

1) Distinguish Evaluate (consider the condition of, which you will be doing) and valuate (put a monetary value on).

2)Let's assume the new owners purchased the new homes with an expectation (supported by the developer's representations or silence)that they were buying what they were seeing, including healthy, structurally sound trees. They are disappointed when the trees do not survive. They want to be made whole (to get what they expected).

I would value the trees based on their condition and probable performance prior to the construction impacts, ASSUMING that the construction impacts could have been minimized to the extent that the existing condition and probable performance could have been reasonably assured. (That is, the developer could have done things and didn't). Trees which should never have been left because they were not going to survive are more difficult. I might value these at pre-construction or purchase date condition (to reflect buyer expectation) and also at poorer condition (to reflect reality) and let the decision makers understand both.

3) A negotiated settlement or court imposed award (buyer vs. developer) might find: A) that the buyer is entitled only to the estimated difference in original purchase price with and without trees, B) that the buyer is entitled to the estimated difference in current fair market value with and without trees, C) that the buyer is entitled to be made whole to the extent possible and that Trunk Formula, Replacement Cost or Cost of Cure estimates need not be limited to contribution to purchase price or FMV, or D) that the buyer is additionally entitled to other damages which might include extraordinary maintenance and removal expenses associated with trees which were expected not to require such expenses.

Your appraisal may need to address some or all of these alternatives. You should discuss them with the client and his/her attorney.

4) A) The IRS typically recognizes casulty losses only to the extent that FMV is diminished, so that's where the appraisal would focus. B) Whether the loss is characterized as sudden and unexpected, precipitated by the one time failure to mitigate construction impacts OR as a non-deductible gradual decline is open to interpretation. C) There are income related deductibility rules.

In any event your client should confer with a CPA or tax counsel.

5) Your post is not clear whether the letter to developers is to encourage informed tree preservation or to solicit appraisal business.

Reply to post by Scott Cullen, on December 16, 1998 at 20:27:26:

Scott, Thank you very much the info was concise and exactly what I was looking for. Sorry I wasn't clear regarding the letter it would be an encouragement letter, or a letter from a mediator so to speak, as when I see these type of practices going on it upsets me and I did not want to sound like a fanatic.Sometimes I can be very direct and I know that there may be a better way to approach these people than to get them defensive.Being that arboriculture around here is about 50 years behind the times I don't really need to solicit business.
Thanks, Ken

Reply to post by Scott Cullen, on December 16, 1998 at 20:27:26:

Scott,

Could you justify a casualty loss to IRS based on sudden loss from construction impact, basing your arguement on the fact that surrounding trees of the same size and on the same type of site, and unaffected by the construction, are in good condition?

Reply to post by Bob Underwood, on December 17, 1998 at 06:46:18:

Bob,

The comparative condition of the surrounding trees would be useful in supporting opinions of pre-construction condition. I'm not sure it goes to the issue of 'suddeness.' I think IRS considers sudden to be a single identifiable event, like a storm or vehicular damage. Trees tend to decline over a period of years from construction impact and gradual decline is often excluded.

The issue open to interpretation is whether the decline was precipitated by the single identifiable event of construction. The only example that comes to mind is a decision which concerned the decline and loss of trees following gypsy moth defoliation. While the decline (two lined chesnut borer, etc.) was gradual, the precipitating defoliation was argued to be sudden and unexpected. I'd have to dig up the decision, it's not right at hand and I don't recall the outcome. Maybe someone else out there remembers.

Scott

Reply to post by Scott, on December 17, 1998 at 09:03:32:

To consider: Would ownership at the time of the sudden event make a difference to IRS? The developer owned the property at the time the sudden event occurred (construction damage), and the new resident purchased the property after that event. This is just something else to think about.

Reply to post by Russ Carlson, on December 17, 1998 at 11:49:13:

Good question Russ. I suppose it would give an examiner an excuse to deny the loss. I don't know what the legality is.

Reply to post by Russ Carlson, on December 17, 1998 at 11:49:13:

Russ,

Taxpayers are able to deduct as casualties, losses that occurred within the taxable year and they must be characterized as sudden and unexpected.

Taxpayers are able to deduct as losses, thefts, in the year the theft is discovered. It might be interesting to pursue whether loss of a tree you purchased by contract under an assumption that it was healthy and sound can be characterized as a theft rather than a casualty. Any lawyers or CPAs out there?

Scott

Reply to post by Scott, on December 18, 1998 at 17:12:59:

What a concept! I wonder if fraud comes under the heading of theft? What kind of time limits might be invoked? Wherein is the burden of proof?

This should be a most interesting line of discussion.

Reply to post by Russ Carlson, on December 20, 1998 at 07:54:41:

This is great! I'm going to see what I can find out offline. Ken

Reply to post by Russ Carlson, on December 20, 1998 at 07:54:41:

I started a new thread in the Legal Issues Topic section [Legal recourse for damages - Russ Carlson 12/20/98 (92)]. Let's follow up on this one over there.