IRS Audits of Conservation Easements
With the average conservation easement donation valued at $400k (vs. $10k for donations of art), it’s easy to see why the Internal Revenue Service is paying more attention to our work. We’re closely monitoring more than 900 audits of easements nationwide and working with the IRS to ensure these efforts ensnare fewer legitimate easement donors.
Ground Zero: Scrutiny of Conservation Easements in Colorado
With roughly 300 audits now underway, Colorado has become a
laboratory for IRS audits of conservation easements. While the State is
working to constructively address abuses of it's lucrative state income
tax credit, IRS audits remain largely indiscriminate. The Alliance is
working with land trusts, attorneys and appraisers in Colorado to
encourage a more strategic approach.
Colorado Easements in the News (posted 12/14/07)
Colorado's newspapers continue to cover investigations by the state and by the IRS of conservation easement donations in Colorado. The Alliance has been working closely with the Colorado Coalition of Land Trusts to help shape how the media handles this story. On Monday the Denver Post ran an excellent editorial, with a message we support: that the state is right to crack down on abusers, while supporting Colorado’s conservation easement program as one that has very successfully protected important conservation lands. Read the editorial.
IRS sends letter to Senator Salazar (updated 9/10/07)
The Land Trust Alliance and representatives of the Colorado's conservation community met with IRS officials in late July to discuss the conservation easement audits in Colorado. See the IRS's letter to Senator Salazar about the meeting. (pdf 688 KB)
Conservation Easement Law Cases
There has been increasing IRS attention to donations of conservation easements, resulting in several recent tax court cases. The Land Trust Alliance continues to support ethical, legal, and technically sound conservation easements but also recognizes that there are "bad easements" out there. We support the new reforms for appraisals and appraisers that passed as part of H.R. 4 in August of 2006. Learn more about those reforms.
Glass vs.
Commissioner
The Land Trust Alliance and the Little Traverse Conservancy submitted a "friend of the court" brief in response to the IRS's appeal of a Tax Court verdict. The IRS argues for new and very narrow interpretations of what wildlife habitat is "significant" enough that its protection with a conservation easement would merit a tax deduction. The Alliance argues for a more inclusive interpretation.
On December 21, 2006, the 6th Circuit Court of Appeals ruled on the Glass case rejecting the IRS's arguments for a greatly narrower reading of what qualifies for protection with a tax-deductible donation of a conservation easement. The IRS's very narrow view of how stringent the protection the easement provides must be was also rejected. The IRS had argued that the easement cannot allow virtually any activity that could conceivably harm conservation values, under any circumstances. See the Circuit Court's decision below.
- Analysis of Glass Case: Prepared by Rob Levin NEW!
- IRS Appeal of the Tax Court Decision
- Land Trust Alliance and Little Traverse Amicus Brief
- Glass Appellee Brief
- IRS Reply in Response to Land Trust Alliance and Little Traverse Amicus Brief
- 6th Circuit Court of Appeals Decision
Ney vs. Commissioner
In this case, the IRS
questioned the validity of the easement donation on two parcels of farmland
owned by Bruce and Marina Ney. The IRS claimed that the petitioners did not
comply with written substantiation requirements and they denied the charitable
deduction. The Ney's appealed the
IRS decision in court. Ultimately, the tax court agreed with the IRS, citing
the lack of a qualified appraisal at the time of donation and the failure to
obtain the appraiser's signature on
Form 8283.
Turner vs. Commissioner
In May of 2006, the U.S. Tax Court disqualified a donated conservation easement for a tax deduction for failing to meet the specific standards of the tax law. The easement was donated by a real estate company to the county government. No land trust was involved. Land Trust Alliance agrees with the IRS in this case, and supports the decision that the easement did not meet the standards of the law. We applaud the court and the IRS for showing that enforcement of the existing law can work.
