Federal Tax Reform

Congress Considers Conservation Easement Tax Reform
On June 8, 2005, the United States Senate Finance Committee held hearings on the need for reform of the tax law governing income tax deductions for conservation easement donations. Those invited to speak at the hearing were Steven J. McCormick (President of The Nature Conservancy), Rand Wentworth (President of the Land Trust Alliance), Tim Lindstrom (GRVLT Attorney and Director of Protection for the Jackson Hole Land Trust), Burnet R. Maybank (Director of Finance for the State of South Carolina), and Steven T. Miller (Deputy Commissioner of Internal Revenue for Tax-Exempt Organizations).

It is expected that formal proposals for reform will be made public during the summer. Possible proposals include mandatory accreditation for land trusts holding conservation easements, mandatory educational requirements for appraisers valuing conservation easements, new penalties for land trusts that improperly modify or release conservation easements, prohibiting deductions for easement donations on golf courses and parcels smaller than ten acres, expanded reporting of certain types of transactions by land trusts, and expanded requirements for land trusts holding deductible conservation easements.

Earlier in the year the Joint Committee on Taxation of the U.S. Congress proposed eliminating conservation easement deductions for easements on land where the donor maintains a residence (such as farmers and ranchers), and reducing all other easement deductions to one-third of the appraised value of the easement. Fortunately, there has been widespread criticism of these proposals and they appear, for the moment, to be off the table.

The tone of the hearing on June 8 was both serious and respectful. Committee members expressed support for continuing tax incentives for the donation of conservation easements, and a desire to avoid reforms that would undermine the work of land trusts. There appeared to be a general acceptance of the proposition that existing laws are generally adequate to address most abuses, provided that the laws are properly enforced.

The IRS announced at the hearing that it has now over 200 easement donations under audit, a marked change from past years when the Service paid scant attention to conservation easements. It can be expected that, at least in the near term, the IRS will be paying close attention to conservation easement donations and conservation transactions.

While it may not sound like good news that the IRS will be watching conservation easements closely, in general it is believed to be a positive step towards curbing past abuses, and providing incentives for those dealing with conservation easements to pay closer attention to the mandates of the tax code and regulations. This is a far better outcome than draconian changes in the law proposed by the Joint Committee on Taxation and others.

We will continue to provide updated information regarding formal proposals for reform.

Jackson Hole Land Trust Director of Protection and GRVLT attorney Tim Lindstrom's statement before the Senate Finance Committee hearing (98KB in PDF)