Enhanced Incentives for Easement Donations Made Permanent Without Reforms

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). One of the provisions of the PATH Act makes permanent the “enhanced incentives” for conservation and façade easement donations.

As a general rule, a property owner could claim the deduction generated by an easement donation to the extent of 30% of the property owner’s adjusted gross income (AGI) in each of the year of the donation and the following five years. Based on changes made in 2006, which were temporary and repeatedly extended temporarily, easement donors were permitted to claim the resulting deduction to the extent of 50% of the donor’s AGI in each of the year of the donation and the following 15 years, or, for qualifying farmer and rancher donations, 100% of the donor’s AGI for the 16 year period. The PATH Act makes these favorable rules for easement donations permanent. In addition, beginning in 2016, the Act also allows a Alaska Native Corporation donating a conservation easement with respect to certain lands to claim the resulting deduction to the extent of 100% of taxable income in each of the year of the donation and the following 15 years. Accordingly, farmers, ranchers, and Alaska Native Corporations that make qualifying easement donations can avoid paying any income tax for up to 16 years.

The PATH Act makes these enhanced incentives permanent without implementing any reforms to curb abuses, as recommended by, among others, the Treasury Department, Professor Halperin, Professor Colinvaux, Professor Gerzog, Jeff Pidot (retired Chief of the Natural Resources Division, Maine Attorney General’s Office), and me. With regard to abuses, below are twenty cases involving disallowed or significantly reduced deductions in this context in 2014 and 2015 alone:

• Atkinson v. Comm’r, T.C. Memo. 2015-236,
• Legg v. Comm’r, 145 T.C. No. 13 (Dec. 7, 2015),
• Minnick v. Comm’r, 796 F.3d 1156 (9th Cir. 2015),
• Bosque Canyon Ranch v. Comm’r, T.C. Memo. 2015-130,
• Costello v. Comm’r, T.C. Memo. 2015-87,
• Kaufman v. Comm’r, 784 F.3d 56 (1st Cir. 2015),
• Balsam Mountain v. Comm’r, T.C. Memo. 2015-43,
• Mitchell v. Comm’r, 775 F.3d 1243 (10th Cir. 2015),
• Belk v. Comm’r, 774 F.3d 221 (4^th Cir. 2014),
• Reisner v. Comm’r, T.C. Memo. 2014-230,
• Zarlengo v. Comm’r, T.C. Memo. 2014-161, 
• Seventeen Seventy Sherman Street v. Comm’r, T.C. Memo. 2014-124,
• Schmidt v. Comm’r, T.C. Memo. 2014-159, 
• Scheidelman v. Comm’r, 755 F.3d 148 (2d Cir. 2014),
• Whitehouse Hotel v. Comm’r, 755 F.3d 236 (5th Cir. 2014),
• Chandler v. Comm’r, 142 T.C. No. 16 (2014),
• Palmer Ranch Holdings v. Comm’r, T.C. Memo. 2014-79,
• Wachter v. Comm’r, 142 T.C. No. 7 (2014),
• Esgar v. Comm’r, 744 F.3d 648 (10th Cir. 2014), and
• Mountanos v. Comm’r, T.C. Memo. 2014-38.

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law