In our growing and fast-changing world, opportunities to preserve scenic open space, protect wildlife habitat and safeguard natural resources for future generations are fleeting.
As the leader of a nonprofit land trust that works to conserve environmentally valuable property, I see the need for such preservation daily.
But conservation groups like mine are challenged by a lack of available funding from both government and private sources. And unfortunately, the Internal Revenue Service recently made the situation worse with guidance that threatens to chill an attractive source of private conservation financing.
At issue is how the IRS treats certain conservation easement donations. A conservation easement is a voluntary, legally binding agreement that forever restricts a property’s future development, making it one of the most powerful and effective conservation tools available.
The land under easement remains privately owned, and activities like farming, ranching, and hunting are often permitted to continue. My organization, like many other land trusts, primarily preserves land through the acquisition and donation of conservation easements.
The tax code provides landowners who donate an easement with a tax deduction equal to its fair market value.
Since the late 1970s, the availability of this deduction has helped conserve millions of acres of American land. In 2015, Congress passed a bipartisan bill permanently increasing the tax incentives for conservation easements with the goal of encouraging more landowners to donate.
The IRS, though, recently took steps that will limit access to this conservation tool when the landowner is a partnership or pass-through entity. In the closing months of the Obama administration, IRS officials designated certain conservation easement donations by partnerships as “listed transactions.”
While this guidance does not invalidate any compliant conservation easement donations, it unfairly labels these already highly disclosed charitable contributions as “tax avoidance transactions.”
The IRS rightly guards against taxpayers claiming overvalued tax deductions based on faulty appraisals. Other conservation leaders and I share that goal.
Fortunately, there is no evidence that abuses of valuation with easement donations are widespread or that they’re more likely to come from a particular type of donor, whether a wealthy landowner, a family partnership or a partnership of unrelated individuals.
That’s why it is unfair that the IRS is stigmatizing a certain class of easement donors, namely partnerships, by retroactively applying onerous and duplicative reporting requirements going all the way back to 2010.
The expansive reach of this guidance and its hostility toward landowners willing to give up property development rights in perpetuity will drive future donors away, effectively repealing congressional intent to extend the tax incentive.
Conservation is expensive. In an era when government cannot finance the cost of land preservation alone, significant new sources of private funding are required. Individuals, family partnerships and investment partnerships should all be allowed to play an important role in advancing needed conservation projects. These easement donations allow ecologically valuable land to be conserved permanently and cost the government less than purchasing and managing the land with federal or state funds.
While conservation is never a landowner’s most profitable option for land use, we must make it at least an economically viable alternative to development if our country is truly committed to protecting precious natural resources.
The IRS guidance fails to address the real problem at hand – over-valuation of appraisals – and should be suspended. My land trust stands ready to work with Congress, the IRS and other conservation stakeholders to develop meaningful solutions that address potential over-valuation and do so without excluding legitimate funding sources.
Without government action to solve this problem, innovative conservation solutions may simply disappear along with more greenspace.
Drew D. Troyer is chairman of the board at the Compatible Lands Foundation, a nonprofit land trust headquartered in Oklahoma that oversees conservation easements in six states.
Whatcom Land Trust
Rich Bowers, executive director of the Whatcom Land Trust, on protecting against overvalued tax deductions:
In every easement transaction the Whatcom Land Trust has played a part in, the motivating factor for the donor has been to protect their land. Putting an easement on your property is permanent. So when you look to sell your property, easement restrictions on future development or extracting resources (usually trees here in Whatcom County) in most cases reduces the re-sale value of your property. Yes, you may be able to get tax benefits, but usually they are nowhere close to what the property would be worth without restrictions. In each case where we hold an easement, the motivating factor for the owner is to protect their land and the values important to them and where they live.
We take specific steps to assure that we don’t overvalue easements. We do that by completing a property appraisal by a qualified appraiser with a strong local track record on each easement before any agreements are finalized. The conservation easements accepted by Whatcom Land Trust must have a clear public benefit for protection of farm land, wildlife habitat, recreation and water quality.
Although it is very rare that we would purchase a conservation easement, rather than receiving it as a donation, by our internal policies we can pay only 10 percent over appraised value and only when the land provides an especially important benefit for the public good. In actual practice, it is rare that we would ever pay over the appraised value. Also, in all easement transactions, we are careful to never provide guarantees to donors regarding tax benefits.
To be sure that our transactions are transparent and that each provides a public benefit, the Whatcom Land Trust has gone through a rigorous process to become nationally accredited by the Land Trust Accreditation Commission. This assures that we must meet the highest standards for land conservation and all aspects of operating a land trust. Accreditation assures that the Whatcom Land Trust can keep the promise of perpetuity and that we are worthy of the public trust.
Whatcom Land Trust is also a member of the Land Trust Alliance, a national nonprofit that advocates for policies and incentives required to save land.