End of the Year Tax Changes and Reminders
As we near the end of the year, we'd like to highlight some recent tax law changes and resources that your land trust should know about:
The New Form 990
Though many land trusts will not have to file a full Form 990, new IRS rules require every land trust to file some kind of tax return in 2009! Depending on your revenues and assets, your organization may qualify for the abbreviated 990-EZ or 990-N e-Postcard.
The full Form 990 has been completely redesigned for tax year 2008, and land trusts need to look at it now, so they can be sure they are collecting the information they will need to fill it out next spring! The Alliance worked closely with the IRS to modify and clarify questions regarding conservation easements on the new form. We believe the new form will be far easier to understand and use than the current form, which many land trust practitioners found confusing and difficult to complete.
- Click here for our detailed guide to the new Form 990
- Click here for links to the IRS forms, instructions and background
Contemporaneous Written Acknowledgment Letters are Essential
The IRS believes that no taxpayer is entitled to a tax deduction for any charitable gift worth $250 or more if they do not have a contemporaneous written acknowledgment of that gift from the charity that receives it. That letter must either state that no goods or services were received by the donor in exchange for the gift, or explicitly state what goods or services were given in the case of a bargain sale.
In a recent Texas case, the Tax Court denied any deduction to a taxpayer who clearly made a substantial contribution to a charity, simply because the taxpayer did not have such a letter. In the wake of this decision, if you are not providing such a letter to conservation easement donors, you should! The IRS says that neither Form 8283 nor language in the easement itself can substitute for such a letter and it's far easier to write a short and simple thank you letter (or email) for your donor than to explain why you didn't.
"IRA Charitable Rollover" and S-Corporation Fix Extended
The financial bailout bill, enacted October 3, includes two tax provisions you should know about. Both provisions were extended through December 2009, and are retroactive to the beginning of this year:
- IRA Charitable Rollover: Originally enacted as part of the 2006 Pension Protection Act, the "IRA Charitable Rollover" provision, allows donors over 70 1/2 to make charitable contributions of up to $100,000 from their individual retirement accounts (IRAs) and Roth IRAs without having to pay taxes on the withdrawals. Click here for more details from Independent Sector.
- S-Corporation Fix: Under previous law, charitable donations of easements and land owned by S-corporations were often discouraged by a rule limiting the charitable deduction applicable to S-corporation shareholders to their stock basis. The 2006 Pension Protection Act (as amended by the 2007 Tax Technical Corrections Act) included a temporary provision removing this limitation. Under this extension, in most cases, S-corporation shareholders will be allowed to deduct up to the full fair market value of their donation. Click here for analysis from attorney Stephen J. Small.
- Click here for a technical explanation from the Joint Committee on Taxation that discusses the charitable IRA provision on pages 59-63 and the S-Corp fix on pages 98-99.
Tax Law Spurs Discounted Land Sales
The Wall Street Journal recently reported that real estate developer D.R. Horton aims to sell much of its land inventory at fire sale prices by the end of the year. In doing so, they hope to take advantage of a tax provision that allows companies to apply losses from land (and other business asset) sales to past profits to earn a tax refund. "More sales are expected soon," the article concludes, "because the companies can apply losses only to profits earned back as far as two years and 2006 was the last profitable full year for most builders." This looming tax deadline could provide land trusts a golden opportunity to acquire lands--nearly lost to development--at a steep discount.
- Click here (subscription required) to see the article from page B1 of the Journal on October 3rd.
New IRS Private Letter Ruling on Conservation Easements
The Internal Revenue Service recently released a private letter ruling analyzing the case of a fairly typical, well-drafted conservation easement. While this favorable ruling reveals few surprises, it provides an instructive look at the criteria considered by the IRS when reviewing an easement deduction.
For more updates like these, keep an eye on our Tax Matters page.
Thanks for all that you do!