First order of business: why irrigate?
The first order of business you have here is to determine what actual value irrigation brings beyond "green lawn". If you're irrigating vegetables and other edible or otherwise useful things, presumably using a drip system, you can skip this section entirely; however, there is a strong case to be made for not planting your lawn in a way that requires irrigation once established.
Using grasses and plantings reflective of the North American shortgrass prarie ecosystem that you sit on the western fringe of, such as blue grama, buffalograss, purple prarie clover, and leadplant (another nitrogen fixer), as well as native shrubs and local wildflower types, in a xeriscaping scheme is a far cheaper (no irrigation installation, lower water bills, less chemicals, less mowing) way to handle your lawn in the long run. This even can work with picky HOAs, as several turfgrass cultivars of buffalograss have been developed over the years due to its hardiness and drought-resistance. Appendix C of the Denver Green Infrastructure Guidelines is a good starting point if you want to go beyond my suggestions here; there are other sources of guidance available as well.
If you insist...
If there's some bizarre reason you can't abide by not having lawn sprinklers, or need to irrigate for other reasons such as vegetable plantings, then we can address the installation issues. First off, the 12" spacing behind the Pressure Vacuum Breaker is required so that the device can be tested and serviced on a regular basis, as PVBs have test cocks, unlike their non-testable Atmospheric Vacuum Breaker counterparts.
With that out of the way, your best bet for the drain port on your Stop and Waste valve is to route it to a floor drain via a drain line and air gap, if possible. If that's not an option, you may be stuck routing said drain line to a sump or other internal drainage means instead; just take appropriate precautions to prevent stormwater from backing up into it!
