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THE FOLLOWING REPRESENTS INFORMATION, NOT ADVICE. THE ACTUAL TAX BENEFITS RESULTING FROM ANY CONSERVATION EASEMENT DONATION WILL DEPEND ON A QUALIFIED APPRAISAL AND CONSULTATION WITH TAX PROFESSIONALS FAMILIAR WITH YOUR INDIVIDUAL TAX CIRCUMSTANCES. NO DECISION SHOULD BE MADE TO DONATE A CONSERVATION EASEMENT FOR THE PURPOSE OF OBTAINING TAX BENEFITS WITHOUT FIRST OBTAINING COMPETENT LEGAL AND TAX COUNSEL.

Introduction
Congress recently enacted significant changes regarding the tax incentives for conservation easement donations. Some of these changes are effective immediately and are currently set to expire at the end of 2007, providing an important but potentially limited opportunity for landowners.

Explanation of New Incentives
On August 17, 2006, the President signed the Pension Protection Act of 2006 (the “Pension Act”). The Pension Act significantly increases the ability of individuals and corporations, particularly ranchers, to use the income tax deductions from the donation of conservation easements that are considered qualified conservation contributions under the Internal Revenue Code (the “Code”).

We believe the Pension Act’s tax changes offer a major opportunity for individual and corporate landowners to realize unprecedented tax benefits and protect the conservation values on their land in perpetuity.

The following materials summarize the Pension Act’s highlights, as well as related Pension Act provisions regarding appraisals of qualified conservation contributions. The materials also offer some practical advice on how to best take advantage of the Pension Act’s increased tax incentives.

Charitable Deductions for Qualified Conservation Contributions

Income Tax Deductions for Individuals: Prior to passage of the Pension Act, the income tax deductions available for qualified conservation contributions were generally limited to no more than 30% of the taxpayer’s adjusted gross income (“AGI”). The Pension Act raises the amount of a conservation easement’s fair market value an individual taxpayer may claim as an income tax deduction to 50% of AGI.

Previously, individual taxpayers were allowed to carry forward the value of any qualified conservation contributions that exceeded the 30% of AGI limitation for up to 5 years. The Pension Act allows individuals to carry forward the value of a qualified conservation contribution in excess of the new 50% of AGI limitation for up to 15 years.

Qualified ranchers may deduct the conservation easement value up to 100% of their AGI, with the same 15 year carryforward period, for donations of conservation easements that satisfy the following requirements:

• A qualified rancher is a taxpayer who earns more than 50% of his or her gross income from the business of farming or ranching in the taxable year in which the conservation contribution is made. The definition of “farming or ranching” is a narrow definition set forth in the Code.
• The conservation easement must cover property that is used, or is available for use, for agricultural or livestock production.
• The conservation easement must contain a restriction that the property will remain available for agricultural or livestock production.

Income Tax Deductions for Farming and Ranching Corporations: Prior to the Pension Act, corporations faced a limitation of up to 10% of their taxable income for qualified conservation contributions. The Pension Act allows corporations earning more than 50% of income from the business of farming or ranching to deduct up to 100% of taxable income with a 15 year carryforward period for a qualified agricultural conservation easement. To qualify, the stock of a farming or ranching corporation cannot be readily tradable on a securities market.

Effective Date: The increased Pension Act tax incentives apply to qualified conservation easements donated from January 1, 2006, through December 31, 2007. Unless Congress votes to extend the Pension Act provisions before they expire, on January 1, 2008, the income tax rules for conservation easements will revert to their status before the Pension Act’s passage. The requirement that the conservation easement contain a restriction that the property will remain available for agricultural or livestock production only applies to conservation easement donations after the date of enactment of the Pension Act.

Appraisal Rules: The Pension Act permanently tightens the oversight standards governing appraisers and lowers the threshold for imposition of accuracy-related penalties upon taxpayers by the IRS for all charitable gifts. The key changes are as follows:

• The thresholds for imposing accuracy-related penalties on taxpayers were lowered. The threshold for substantial valuation misstatements has been lowered, from a claimed value of 200% of the amount determined to be the correct value, to 150%. The threshold for gross valuation misstatements has been lowered from 400% to 200%.
• The thresholds for accuracy-related penalties for substantial and gross estate or gift tax valuation misstatements were also lowered.
• The appraiser penalties were increased for appraisals used to support a tax position if the appraisal results in a substantial or gross valuation misstatement. The Pension Act also makes it easier for the IRS to initiate disciplinary proceedings against appraisers.
• The Pension Act tightens the definition of “qualified appraiser” under the Internal Revenue Code. The act also references this more restrictive definition in its modified definition of “qualified appraisal.”

Adapted with permission from Isaacson Rosenbaum, P.C.’s August 2006 Conservation Alert. You can reach Isaacson Rosenbaum at 633 17th Street, Suite 2200, Denver, CO 80202 or (303) 292-5656.