Over the past several years,
conservation easements have come under increasing scrutiny. Critics
have argued that these private agreements — designed to
forever protect open space on private land from development —
have resulted in widespread abuses, such as giving too much money
in tax breaks or other advantages to the wealthy and powerful.
These concerns prompted an investigation by the Senate
Finance Committee, which looked into the conservation practices of
the nation’s 1,500 land trusts. Land trusts typically “hold”
conservation easements, and are responsible for making sure that
landowners comply with easement restrictions. Reforms have been
promised by the Senate committee, but so far, none have emerged.
Some of the reforms talked about include cutting easement
deductions to one-third of their current level and prohibiting
easement donors from living on the conserved property. The latter
notion is a terrible idea, since farmers and ranchers granting
easements typically live on their land.
I represent
several land trusts that operate in resort communities, and I know
how important these tax incentives can be in conserving land that
would otherwise turn into high-end subdivisions affordable by only
the very rich. Nearly one-quarter of all the private land in
Jackson Hole, including entire highway corridors traveled by
millions of tourists annually, is now protected with private
conservation easements.
Tax deductions for easement
donations are based on the appraised difference between the value
of a property before and after an easement is put in place.
Nationally, easements have led to the permanent protection of
almost 34 million acres of private land. These are magnificent
places that the nation has neither the stomach to protect by
regulation nor the funds to protect by purchase.
It would
take an ostrich to believe that there are no abuses in these
conservation easement transactions. By its own admission, the
Internal Revenue Service hasn’t bothered to look at easement
deductions for nearly 10 years. Although some of us have been
arguing publicly that easement transactions must comply with the
law, the lack of attention by the IRS provides little incentive to
do so. All sorts of things can happen when no one cares whether you
obey the law or not.
This is more or less akin to me
having written a list of “Dos and Don’ts” for my two children
on the refrigerator door and forgetting about it for several years.
No wonder the kids are acting up. Merely adding to the list
isn’t likely to improve their behavior, either.
That abuses are occurring in the absence of enforcement, however,
does not mean that the law is at fault. It is very difficult to
justify reform when the existing law has never been seriously
enforced.
The public is not privy to IRS audits unless
they go to court, but out of the over 100 reported court cases
involving IRS challenges to deductions for conservation easements,
only four involved the substance of a conservation easement instead
of merely challenging an appraisal.
What we need now is
enforcement, not major reform. We need the IRS, land trusts,
landowner advisors, appraisers, and accountants who deal with this
stuff, to learn the law and respect it. This will come through
enforcement of the existing law, and through education —
perhaps mandatory education — for land trusts.
The
problem is that legislating reform is cheap, while enforcing the
law knowledgeably and consistently is not. But if we want to ensure
that taxpayers are getting their money’s worth from this
innovative and highly effective tax program, it is enforcement that
is most likely to do the trick.
Fortunately, Sen. Charles
Grassley, R-Iowa, chairman of the Senate Finance Committee, who is
leading the charge on abuse investigation, and others, such as
Sens. Craig Thomas, R-Wyo., Max Baucus, D-Mont., and Blanche
Lincoln, D-Ark., seem to realize that land trusts are getting the
message to shape up. They also seem willing to let land trusts
prove that they can address abuses in their midst before launching
draconian reforms.
Meanwhile, the IRS recently initiated
audits of over 250 easement deductions. There is no doubt that
these audits will provide a valuable learning experience for all of
us, including the IRS. Scrutiny provides an important incentive for
compliance with the law, and for learning how to comply. It’s
an incentive that’s been absent for far too long.
I
hope that major reform of the law can be deferred until these
renewed efforts to enforce the law show us whether we need reform
at all.
Tim Lindstrom is a contributor to
Writers on the Range, a service of High Country
News (hcn.org). He is a lawyer in Jackson, Wyoming,
specializing in conservation easements, and he and his family have
donated easements on farms in Michigan and
Virginia.
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