Donald Trump and Conservation Easements

Conservation easements have been having a day lately. As Lloyd pointed out a couple weeks ago, both the IRS and Congress are aggressively looking at conservation easements. And a week ago, the New York Times‘s bombshell story that it had received more than 20 years of President Trump’s tax return data again.

We already knew in 2016 that Trump had claimed a deduction for conservation easements and Richard Rubin at the Wall Street Journal pointed out a month ago that his conservation easements were vulnerable to IRS challenge. But now we have a little more detail.

Before we get to that detail, though, a quick description of what a “conservation easement” is. As a general rule, to get a charitable deduction for the donation of property, the donor must give all rights in the property to an exempt organization. The Treasury regulations provide a limited exception to this rule, though: if a property owner donates a perpetual interest in land to a qualified recipient, the owner can take a deduction. Essentially, this donation prevents the property owner from developing the property.

Donald Trump donated at least three conservation easements, one on the Trump National Golf Club Los Angeles, one on Mar-a-Lago, and one on Seven Springs.  (According to the Times there’s a fourth, but these three will work for illustrative purposes. It’s worth noting that these four conservation easements make up the bulk of Trump’s charitable contributions.) For each of these conservation easements, he claimed a deduction of between $20 million and $25 million.

His conservation easements raise a couple questions. Perhaps the biggest one is valuation. On his Seven Springs estate, he agreed not develop most of the land. But he only appears to have donated the easement after he ran into significant problems in developing the property. So was the conservation easement worth $21 million or so?

The regulations provide that the value of the deduction is equal to the fair market value of the easement. Where there is a “substantial record of sales of [comparable] easements,” the donor can use those to calculate fmv. Where there isn’t, essentially the value of the easement is the difference between the fair market value of the property before the donation of the easement and the fmv of the property after the donation.

The second issue is illustrated by the Mar-a-Lago conservation easement. The Palm Beach Post describes Trump’s grant of the easement as part of his negotiations with the Palm Beach town council to get permission to convert the private residence into a club. And to the extent there was a quid pro quo, Trump couldn’t deduct the full value of the conservation easement; rather, he would have had to offset it by the value of what he got from the town council.

Finally, the donations of conservation easements raise one more question: did Trump have tax benefits from the donations? According to the Times, he has had a loss for tax purposes for most of the last 15 or more years. So did he have income to offset with the charitable easements?

Samuel D. Brunson