The Conservation Easement Should Be Replaced with Direct Spending
See, this is why we can’t ever have anything good. All we really need to know is that a donor purchased 248 acres for $730,000, about $3000 an acre. Merely a year later, the donor executed a conservation easement and claimed a charitable contribution deduction of $115,395,000, about $500,000 an acre. In the space of a year, the property appreciated like ice water in hell. No kidding and then the donors went to Court with righteous indignation to challenge the Service’s denial.
In North Donald LA Property v. Commissioner, the Service rejected the claimed charitable contribution deduction. The Service argues that the donor’s retention of subsurface mining rights defeated the perpetuity requirement — I am not even sure I understand the issue, and conservation easements seem so stupid I don’t want to read more about it. It might be my willful ignorance but the whole concept of paying land-owners to just . . . well, own the land and nothing else doesn’t make much sense. These conservation easements are such a waste of time and resources (for all of us, the tax code, the environment and economy) that I am not even in the mood to delve deeper into it. Its like throwing money out the window, the revenue loss from 170(h). But don’t get me wrong. I would vote to spend public money for conservation, just not through the tax code where its easy to disguise oneself as a tree hugger.
So its a good thing the omnibus spending bill signed at the last minute last year addresses this abuse. But Congress should go further and repeal conservation easements altogether. Better to use direct spending to conserve the environment. As it stands, the subsidies seem increasingly gathered in by greedy folks hardly concerned at all about conservation. Indirect subsidies are always imprecise. Like firing at a small target using a rifle with a wide mouth barrel. We could probably spend less and get more conservation by spending elsewhere than in the tax code.
Maybe its good policy to incentivize people to set land aside for conservation, but 170(h) is an incredibly sloppy and inefficient way to do that. It instead incentivizes overvaluation and tax payments for land that was fine before the tax code came along trying to save it from development. I won’t belabor the point and it may even be true that we hear mostly about the bad apples that are, perchance, a minority. But there are so many suspicious conservation easement that donors are standing in long lines outside the courthouse to challenge the Service’s denial of deductions, and the Service even implemented a settlement program to stem the tide of tree hugging environmentalist allocating charitable contribution deductions on Schedule K-1 to land owners who don’t really give a rat’s butt about conservation. Here is a brief description from the practitioner world:
The new settlement initiative is the most recent move by the IRS to combat and deal with the perceived problem. As part of its announcement, IRS Commissioner, Charles Rettig, sent an unequivocal message, indicating that the Service will continue to target conservation easements that it views as abusive: “The IRS will continue to actively identify, audit and litigate these syndicated conservation easement deals as part of its vigorous and relentless effort to combat abusive transactions.” “Ending these abusive schemes remains a top priority for the IRS.”
The IRS has established a cross-divisional team to carry out its enforcement strategy. That strategy is particularly focused on the professionals and organizations associated with the transactions at issue: promoters, return preparers, donee organizations, and appraisers. It has even created two new offices that are actively investigating conservation easement transactions: The Promoter Investigation Coordinator and the Office of Fraud Enforcement. And it has established a policy of asserting stringent penalties, which can include, among others, the following penalties:
Separately, the IRS’s Criminal Investigation division is actively pursuing criminal investigations. And the Service has a backlog of conservation easement cases docketed in the Tax Court, a fact that prompted the perceived need for the new settlement program.
We should get rid of deductions for conservation easements. There are better ways.
darryll jones