Donors still must obtain a lender subordination to the entire conservation easement, including the payment on extinguishment clause, and record it at the same time as the conservation easement despite this new ruling.
The IRS lost two significant recent cases that deal with historic preservation easements but have important implications for all conservation easements as well. United States Court of Appeals for the First Circuit handed taxpayers—and the entire preservation and conservation communities—another big victory in Kaufman v. Commissioner (US Court of Appeals 1st Circuit, Nos. 11-2017, 11-2022, July 19, 2012). Similarly in Scheidelman v. Commissioner the United States Court of Appeals for the Second Circuit overturned a controversial Tax Court decision supporting the IRS interpretation of substantiation requirements.
But this is not a time for complacency. The IRS and the Tax Court have warned us that failure to follow all of the rules can result in very unpleasant consequences. Donors and land trusts must still pay attention to details and not hastily suspend recently adopted new practices regarding deduction substantiation or become lax or lazy in continuing to implement sound practices to help landowners understand their obligations in these highly technical transactions.
And in spite of another recent Tax Court case, Averyt v. Commissioner (see below), holding against the IRS an another issue, all land trusts should send the “gift” letter. The Alliance has sample letters and other relevant information on contemporaneous written acknowledgement (gift) letters.
The Alliance has a special collection of documents that includes information on this most recent developments in case law, as well as samples of mortgage subordination language, practical pointers and fact sheets, articles, summaries and full text versions of the cases, and a copy of the regulations regarding mortgage subordination at. Log in to The Learning Center first and then paste the address in your browser if you are not automatically directed to the collection.
The First Circuit reviewed three main points in its Kaufman opinion:
The First Circuit focused on the IRS’ interpretation of the Treasury regulations and whether easement-holding organizations must have a priority interest to insurance and condemnation proceeds in the event the easement property is destroyed or condemned. The court rejected the IRS’s interpretation, finding that such an interpretation would “doom practically all donations of easements” and was contrary to the purpose of the statute that Congress intended.
The second issue related to whether the easement holder’s discretion to consent to changes to the property or abandon the easement failed to satisfy the regulatory requirement that easements must prevent uses that are inconsistent with the preservation of the property. This issue was squarely addressed in Simmons, and the court found that easement holding organizations must be allowed flexibility in the oversight of their easements, and that abandonment of the easement was a remote possibility, one that the IRS could directly control in its regulation of tax-exempt organizations.
The court stated that Treas. Reg. § 1.170A-14(g)(1) “nowhere suggests the stringent outcome that the IRS seeks to ascribe to it and the consequences of the reading would be to deprive the done organization of flexibility to deal with remote contingencies.”
The final issue addressed was the technical noncompliance of the appraisal summary submitted by the donor. By focusing on the minor deficiencies of the appraisal summary, the court stated that the IRS, in avoiding the valuation issues, was attempting to “convert an inherently factual issue into a set of violations of the procedural requirements [of the regulations] … in disregard of their language and purpose.” The court applied the substantial compliance doctrine to numerous minor omissions by the Kaufmans in their Form 8283 filing, as well as the appraisal and the appraisal summary, stating “we can hardly agree with the IRS that these defects, in no way prejudicial to it in this instance, doom the appraisal summary.”
The First Circuit’s decision overturned the Tax Court’s interpretation of the Treasury regulations in Kaufman v. Commissioner, 136 T.C. 294 (2011). However, because the Tax Court based its decision not to impose further penalties on the Kaufmans on the understanding that the deduction failed for technical reasons, the court vacated the penalties decision as well. The court returned the case to the Tax Court to address the valuation issue and reconsider the penalties.
The court specifically addressed the IRS’s concern about abusive appraisals, but said that using technicalities to deny deductions rather than addressing the legitimacy of valuation was not acceptable. The court did express skepticism about the actual valuation, as well as any significant economic difference between existing zoning and preservation laws and the façade easement restrictions, but left that to the Tax Court to determine after it reexamines the case. Following the trend of the Second Circuit Court of Appeals in the Scheidelman decision reported last month, the court said that the IRS cannot avoid litigating valuation by relying on non-prejudicial technical errors in reporting.
Nevertheless the court expressed some understanding for the IRS’s approach:
Doubtless it is the desire to avoid such trials, as well as the difficulty of detecting and investigating suspicious cases one by one, that explains the IRS's aggressive legal positions in this case. And, despite our rejection of those particular positions, we do not question the IRS's concern, transcending this case, that individuals and organizations have been abusing the conservation statute ‘to improperly shield income or assets from taxation.
Such language from the Court may have broader implications for conservation generally and IRS interpretation of at least the present Treasury regulations.
However, to reject overly aggressive IRS interpretations of existing regulations is hardly to disarm the IRS. Without stifling Congress' aim to encourage legitimate easements, one can imagine IRS regulations that require appraisers to be functionally independent of donee organizations, curtail dubious deductions in historic districts where local regulations already protect against alterations, and require more specific market-sale based information to support any deduction. Forward looking regulations also serve to give fair warning to taxpayers.
Just four days before the Second Circuit’s decision on the appeal in Scheidelman, the Tax Court decided a similar case (Rothman v. Commissioner, US Tax Court, T.C. Memo. 2012-163, June 11, 2012). In Rothman, the Tax Court rejected the appraisal for the same reasons that it rejected the appraisal in Scheidelman. The Second Circuit’s reversal of the Scheidelman decision four days after the Rothman decision caused the Rothmans to move for reconsideration of the Tax Court’s analysis. On July 31, 2012, the Tax Court issued a revised opinion that narrowly applied the Second Circuit’s holding in Scheidelman, reversing only the two points that explicitly overlapped the two cases and declining to reverse any other point.
In Averyt v. Commissioner, the Tax Court determined that, under the specific facts, the conservation easement satisfied Code Sec. 170(f)(8) and qualified as a contemporaneous written acknowledgment. This is a rare occurrence. Averyt was a taxpayer victory but we haven’t heard from the IRS what they think about it so for the foreseeable future, everyone should still send a separate gift letter and not rely on satisfying this code requirement in any other way.
Nationally respected tax attorney and conservationist Steve Small says, “these three recent decisions are very important to the land trust community. They break what has mostly been an IRS winning streak in court, and that is important by itself. Scheidelman and Kaufman deliver a message to IRS that, among other things, the Service should stop relying on ‘technicalities’ to defeat easement gifts and start arguing about valuation. In addition, these two decisions, and Averyt, may, or may not, change IRS audit strategy, and it may be easier for taxpayers to settle cases rather than fighting all the way to Tax Court. But that still remains to be seen. And don’t rely on Averyt. As our button said at Rally a few years ago, ‘Send the damn gift letter.’ These may be good cases for easement donors, but there is no excuse for not following ALL the rules, to the letter. We know what the rules are; get it right!”
It remains to be seen how the IRS will deal with these Circuit Court of Appeals decisions that directly contradict the IRS approach to easement tax code compliance.
]]>The Second Circuit Court of Appeals in Scheidelman v. Commissioner, No. 10-3587, 2nd Cir. Ct. Appeals on an appeal of the Tax Court ruling in Scheidelman v. Commissioner, 100 TCM (2010) held that:
On March 24, 2003, Huda T. Scheidelman completed an application to donate a conservation easement on the façade of her historic Brooklyn brownstone. The National Architectural Trust required an initial deposit of $1,000 with the application and an additional donation of $9,275 upon completion of the appraisal and acceptance of the easement. Ms. Scheidelman sent the money and, on June 23, 2004, the Trust completed a Form 8283 acknowledging the easement contribution. The form was then sent to Ms. Scheidelman with a thank-you letter stating that she had received “no goods or services in return.”
Ms. Scheidelman claimed tax deductions for her contribution in 2004, 2005 and 2006. In March of 2008, the Commissioner mailed notice to Ms. Scheidelman of a deficiency in those years as a result of disallowance of her deductions. Ms. Scheidelman filed a petition with the Tax Court for a redetermination. In her petition, she also requested an additional deduction for the $9,275 contribution in 2003. After hearing the case, the Tax Court eliminated the penalties but denied all deductions. Ms. Scheidelman appealed.
Despite the opinion in Scheidelman, conservation organizations should continue to be wary of the risk that the IRS will deny a deduction for a mandatory contribution. The court’s decision that a cash contribution (even a mandatory one) that serves to fund the administration of another charitable donation is likewise an “unrequited gift” is a positive development in case law on charitable donation deductions. However, prudent conservation organizations know to ”request” contributions and should not change their practice until this area of law has fully evolved, all the circuits have accepted the opinion of the Second Circuit and the IRS has confirmed their acceptance of the ruling.
The IRS has stated in the past that tying a stewardship contribution to actual stewardship costs is not fatal to deductibility. Rather, it is a percentage fee that is most problematic for the IRS when reviewing stewardship contributions. The IRS concerns about actual stewardship costs could prompt greater scrutiny if the amount requested is either disproportionately high relative to actual cost or if the amount is directly tied to tax benefits. Conservation organizations should continue to exercise prudence in seeking donations to fund stewardship administration and defense.
A broad coalition of dozens of conservation organizations, including The Land Trust Alliance, established a significant precedent for conservation in Colorado. Rob Bleiberg, Bill Prakken, Diana Cort, Ilana Moir and all the folks at Mesa Land Trust did a terrific job on this matter, as did their legal team of Allan Beezley, Peter Nichols, Bob Trout, with Peter as the lead attorney on the appeal, Melinda Beck as the lead attorney on the two amicus briefs, Larry Kueter who testified at the trial and helped on the strategy throughout, Amy Beatie, Zach Smith, Chris Mills, Steve Imig on the amicus brief, Marie Vicek on the briefs and trial preparation, Bill Silberstein, Andy Hamano and the Land Trust Alliance team, who helped on strategy.
We can accomplish great things for conservation permanence working together. If your land trust has not committed to participate in Terrafirma yet, you still have time. Check the information on the website or call:
Leslie Ratley-Beach
Conservation Defense Director
Land Trust Alliance
802-262-6051 | lrbeach@lta.org
The conservation easement prohibits, among other activities, the following: (a)“industrial or commercial uses of any kind… except home occupations,” (b) “commercial mining and/or quarrying of any kind. However, quarrying for the personal use of the Grantee … shall be permitted,” (c) “depositing, dumping, abandoning, or release of any solid waste or debris, or liquid wastes or chemical substances … except … fertilizers, herbicides and pesticides,” and (d) “New roads, except to provide low-impact temporary access to logging.”
In 2002, the Stockport Mountain Corporation LLC (Stockport) bought the 2,000-acre protected property from Stockport Forest Preservation, LLC, a wholly owned subsidiary of the Norcross Wildlife Foundation, the easement holder. Several years later, Stockport sought Norcross’s approval of a natural gas hydrofracture drilling lease. Stockport claimed the lease would affect only five acres of the protected property. Norcross denied approval, and Stockport sued.
In a memorandum opinion (Stockport Mountain Corporation LLC v. Norcross Wildlife Foundation, Inc., No. 3:11cv514 (M.D. Pa. March 1, 2012)), the court denied Norcross’ claim that the proposed drilling lease clearly violated four provisions of the conservation easement and therefore the complaint should be dismissed without further argument. First, the court held that the purpose provision, in and of itself, was too vague and subjective to prohibit drilling. Next, the court held that the terms “commercial” and “industrial” were not defined in the easement, and that other sections of the easement allow certain such uses, thus creating enough ambiguity to survive the motion to dismiss. Similarly, the court held that it was ambiguous whether the release of chemicals below the surface of the protected property, as opposed to on or above the surface, is prohibited by the easement. Finally, the court found that Stockport’s contention that the drilling activities would use existing roads and that new roads would be “largely unnecessary,” was enough to show an ambiguity about whether the roads restriction of the easement would be violated. The court found that at this stage of the proceedings it was premature to say that the gas lease is clearly and unambiguously prohibited by the conservation easement.
The court elaborated on ambiguities in “crucial provisions” that would require further discovery to resolve. For example, in interpreting the easement’s purpose to protect the property from “occurrences which might interfere with the Property’s Conservation Values,” the court said that the conservation values “are not known at this time as they are not attached as an exhibit to the complaint” (which included the conservation easement as an exhibit).
The court also suggested that ambiguity was created by “the conservation easement’s express approval of many activities that are contrary to its purpose, such as allowing limited timbering, quarrying, ATV/snowmobile use and the construction of four residences.” Norcross pointed to the Pennsylvania conservation easement enabling statute’s provision that “conservation or preservation easements shall be liberally construed in favor of the grants contained therein to affect the purpose of those easements and the policy and purpose of this act,” but the court did not credit this argument.
Although conservationists hope, and assume, that Norcross will eventually prevail, it will now have to spend time, effort and funds on discovery and further litigation proceedings. Easement drafters should review their templates to see how they would stack up against this court’s interpretations. Some drafting suggestions include:
Please feel free to call or write to the representative in your region for anything relating to Terrafirma, or write or call Leslie Ratley-Beach, Land Trust Alliance Conservation Defense Director at lrbeach@lta.org or 802-262-6051.
Land trusts must respond affirmatively to 13 eligibility questions to participate in Terrafirma. Accredited land trusts are automatically eligible. The Alliance has practical suggestions and solutions to common difficulties in the eligibility details information piece.
Want a dollar discount on each Terrafirma Premium? A webinar on key concepts in risk management for land trusts on April 10 and 12, 3:00-4:00 pm ET fulfills the requirements for the Terrafirma insurance dollar off discount on each property premium only if the attendee is a member of the land trust’s board of directors, senior management or departmental director. Participants should attend one session only.
Conference: 1-888-450-5996
Participant Code: 933095 Login: http://landtrustalliance.adobeconnect.com/terrafirma
Remember that the base premium before any discounts is $60 per property. Accredited land trusts automatically receive an $11 discount. Discounts are also available for land trusts that meet certain good practices. View the Terms and Conditions for more details.
If you have not looked at the application and insurance policy, they are available on the Alliance website, and the summary explains the various sections. If you have any questions or comments please call or write to me.
The neighbor was not a party to the conservation easement but contended that he was a third party beneficiary. The conservation easement provided that a prevailing party was entitled to recover attorney fees and costs. The court found for the land trust. CNLM then filed a motion for an award of attorney fees and costs as the prevailing party under the conservation easement.
The neighbor opposed the motion on the ground that he could not be liable for attorney fees because the court had concluded he was neither a party nor a third party beneficiary of the conservation easement. The court awarded attorney fees to CNLM in the amount of $68,236 concluding that the mutuality of an attorney fee clause in a contract must be enforced even when the defendant prevails on a theory that the plaintiff was neither a party to the contract nor a third party beneficiary.
The court reasoned that a contrary result would defeat the public policy of mutuality of attorney fee provisions. Even though the case has no precedential value it provides the analytical framework for recovering attorney fees as the prevailing party where a third party unsuccessfully seeks to establish standing to sue on a conservation easement or any other contract.
See Carrillo v. Center for Natural Lands Management, et al, Santa Cruz County Superior Court, Case No. CV162827, California, 2011.
The Van Dusen v. Commissioner, 136 T.C. No. 25 (June 2, 2011) case is of concern to both land trusts and volunteers but you can do a few things to make it less troubling. The volunteer and not the land trust should be responsible for tracking expenses and presenting those expenses to the land trust. All expenses submitted should be itemized and clearly documented as solely for the benefit of the land trust. The land trust should officially designate an appropriate party to receive the documentation from volunteers, such as the board treasurer if the land trust has no staff, who would then check the documentation for obvious errors such as an expense that is obviously not connected to land trust work. The land trust must look for any obvious errors or expenses not for the benefit of that land trust.
The land trust can then issue the required contemporaneous written acknowledgement letter for any expenses in excess of $250 not reimbursed by the land trust, consistent with the judge’s comments in Van Dusen. The land trust is not required to track volunteer expenses. Please note a technicality: the $250 threshold is for individual expenses, not cumulative expenses. A $249 airfare to attend Rally does not require the "no goods and services" letter for example. It is only individual expense items of $250 or more that require that extra documentation.
Van Dusen, cat enthusiast and volunteer for Fix Our Ferals, a 501(c)(3) organization that neuters and fosters feral cats, sought a tax deduction for her costs associated with long-term foster care of approximately 80 feral cats, which she provided from her private residence. She claimed numerous out-of-pocket expenses in excess of $250 directly tied to the charity Fix Our Ferals, but lacked specific documentation of exact expenses and did not obtain the required contemporaneous written acknowledgment from an officer of the all-volunteer, loosely organized charity. The court, however, found that Van Dusen’s individual expenses of less than $250 each were allowable deductions under the substantial compliance doctrine because she substantially met the documentation requirements, which are either a cancelled check, a receipt from the charitable organization outlining the contribution or other reliable written records of a transaction, as stipulated in section 1.170A-13(a)(1).
Individual expenses of $250 or more, however, were not found to be deductible, because Van Dusen failed to produce a contemporaneous written acknowledgment from Fix Our Ferals, as required by section 170(f)(8)(a).
For a nonprofit organization and a donor, the significance of both providing and seeking an acknowledgment letter continues to be critical. If you do not already send contemporaneous written acknowledgments for all charitable donations, see these guidelines here to protect your organization and your donors. This holding may be significant for land trusts that rely heavily on volunteers and do not routinely reimburse their expenses. There may be a need for additional paperwork to substantiate volunteer out-of-pocket expenses of $250 or more. Remember that professional services are not tax deductible.
In Van Dusen v. Commissioner, The court also briefly discussed the definition of a charitable contribution and cited three types of gifts including cash and property (whether direct, in trust or for the use of the charity), unreimbursed expenses and other legal rights.
Volunteers can also be vulnerable to lawsuits for negligence, so having the right training and support from the land trust is critical. While federal law and state statutes provide some protection, the statutes lack uniformity and consistency. State legislatures try to balance protecting volunteers with assuring compensation to innocent victims. Only about half the states protect any volunteers other than directors and officers. Every volunteer protection statute -- even the federal statute -- has exclusions; the most common are based on a volunteer’s willful or wanton misconduct. Several laws also exclude gross negligence or another category of error above negligence.
Under the federal statute, one of the key exceptions is where a volunteer performs an activity that falls outside of the job description. While valuable, the intent of volunteer protection laws is to limit liability if a claim falls within the scope of the protection, but they do not prevent the volunteer from being sued. The statute and various articles are posted in the Clearinghouse collection under Federal Volunteer Protection Act. Learn more on the Council of Foundation's website and the Public Entity Risk Institute's website.
The land trust can also help volunteers by ensuring that they stay within the bounds of their roles and follow organizational policies. Use this resource to find the right software to track contact info, schedules, time sheets and work locations, freeing time to build loyalty to the mission and to provide sufficient supervision.
In addition to having appropriate oversight of volunteers, land trusts should carry both general liability and directors & officers insurance coverage to provide a financial backstop when there is litigation concerning a land trust’s volunteers activities. Volunteer coverage is also recommended.
Since 1988, Westchester Land Trust has written 184 conservation easements to protect and preserve over 7,500 acres throughout the county. Easements are drafted after careful documentation of all natural habitat, indigenous flora and fauna, and mapping research on watershed patterns. It is the language of the easement and the resolve of the people charged with upholding the easement that protects the value of these documented natural resources. Having the resources to support that resolve is critical to every land trust in America.
]]>The Tennessee Parks and Greenways Foundationwas established in 1998, merging the Tennessee State Parks Foundation and the Tennessee Greenways Program of the Conservation Fund. In its commitment to conserve Tennessee’s land and waters, three strategies guide its efforts: conserving Tennessee’s natural resources, creating greenway corridor connections, and fostering conservation education initiatives. For more information about this violation please contact Land Conservation Coordinator Nora Beck at nora@tenngreen.org.
Hoyte also owns 5 acres just outside Washougal city limits. Hoyte installed the lines on his family farm last year and began operating Heritage Farms Canopy Tours. Pre-trial activities are just beginning and no trial date is set. The parties are discussing a settlement but have not reached any agreement.
]]>Three landowners lost each of their entire federal tax deductions from the donation of preservation and conservation easements in Massachusetts, Alabama and Indiana in three separate cases decided at the end of March and early April due to various failures in technical compliance issues with the Tax Code and the Treasury Regulations.
On April 4th after reconsideration of its 2010 summary judgment decision (134 T.C. 182 (2010), “Kaufman I”), the US Tax Court affirmed its position that the holder of the easement must have an absolute guaranteed right to its proportional share of proceeds from a sale after extinguishment of the easement prior to the lender right to any remaining proceeds. If the lender has proceeds priority, Judge Halpern opined, then the preservation (or conservation) easement does not comply with the perpetuity requirement. Lorna Kaufman granted a historic preservation façade easement to National Architectural Trust (NAT). NAT obtained a subordination of Kaufman’s mortgage to the easement conditioned on the lender priority to any casualty insurance or condemnation proceeds until the mortgage was paid. Both Kaufman and the IRS asked the Tax Court for reconsideration, and many preservation organizations petitioned to be heard as amici, leading to the reconsideration decision, “Kaufman II”. The Court stated that it decided Kaufman I because NAT might not receive its proportional share of any future proceeds, the lender agreement failed to satisfy the extinguishment and perpetuity requirements. Kaufman had also argued that chance of an eminent domain taking or casualty loss were so negligible that whatever rights the lender had in proceeds from such events should come under the “so remote as to be negligible” exception.The Kaufman II Court held that exception does not apply to the extinguishment requirements because the easement must give the holder of the easement “an absolute right to compensation from the post-extinguishment proceeds for the restrictions judicially extinguished” to satisfy the extinguishment provision. “It is Lorna Kaufman’s failure to accord NAT an absolute right to a fixed share of the post-extinguishment proceeds that causes her gift to fail the extinguishment provision. It is not a question as to the degree of improbability of the changed conditions that would justify judicial extinguishment of the restrictions. Nor is it a question of the probability that, in the case of judicial extinguishment following an unexpected change in conditions, the proceeds of a condemnation or other sale would be adequate to pay both the bank and NAT.” Whatever you think of the Court’s decision, it appears to be thoughtful with an extensive discussion of common law starting at page 15 and followed by application of the Treasury Regulations to common law means of extinguishing easements through page 32.
The Kaufman court had better news for conservation on the stewardship contribution front than in Scheidelman. The Kaufman II Court’s decision about the deductibility of the stewardship contribution was fact dependent. In December 2003 NAT told Kaufman they’d accept her easement subject to various conditions, including that an appraisal of the easement’s value be completed by February 2004 and that she make a contribution before the end of 2003 based on 8% percent of the anticipated appraised value (“the 2003 contribution”) with a second contribution to be given in 2004 based on the difference between the 2003 contribution and 10% of the actual appraised value of the easement (“the 2004 contribution”). The court reviewed all of the extensive correspondence between the parties as well as testimony and concluded that the 2004 contribution was not conditioned on receiving a charitable contribution deduction and was not ‘required’ by NAT since Kaufman received no benefit from the cash contribution. The Court also rejected the IRS claim of a quid pro quo between the parties for the 2004 contribution. The Kaufman II Court disallowed the 2003 contribution (as a conditional payment because the value of the easement might not be more than zero) but allowed the 2004 contribution.
The Court also noted starting on the bottom of page 49 that it had no obligation and no desire to consider valuation in the case, and that the Court should not be required to invest substantial time and effort to resolve difficult factual questions of intent and value presented by the IRS claims of taxpayer negligence. The Court then cited the ‘laborious’ undertaking of determining value illustrated by the recently decided Trout Ranch v Commissioner case (TC Memo. 2010-282).
In a recent Tax Court case, Schrimsher v Commissioner, TC Memo 2011-71, the court granted summary judgment for the IRS disallowance of the entire land owner claimed deduction. The Court found the deduction invalid because the donor did not have a contemporary written acknowledgment of the donation that specifically stated that no goods or services were received in exchange for the donation. The donors’ attempts to claim substantial compliance were summarily rebuffed. Additionally this donor had a non-compliant Form 8283. It was not signed or dated by either the appraiser or the Alabama Historical Commission (as is required); and did not attach the appraisal to their tax return (required by law if the donation exceeds $500,000).
The donor argued that the easement was the contemporaneous written acknowledgement. The court said it did not clearly either deny that any goods or services were received in exchange, or estimate the value of those goods and services – both required by law to be part of a contemporaneous written acknowledgement by IRC sec. 170(f)(8). Conservation tax experts now routinely advise both land trusts and landowners that the IRS position has hardened on compliance with technical requirements. Karin Gross, an attorney in the IRS Chief Counsel Office, regularly states at Rally sessions that the IRS will strive to dispose of cases on the simplest grounds possible to avoid dealing with more difficult valuation issues. Learn more.
In Boltar v. Commissioner 136 T.C. No. 14 (2011) the Court excluded the developer partnership’s experts’ appraisal as unreliable and irrelevant. The Court sustained the IRS allowance of only $42,400 out of $3,245,000 claimed as a charitable contribution deduction on the partnership return of Boltar, L.L.C. (Boltar) for a conservation easement on 8 land-locked acres in Indiana. Boltar’s experts failed to apply the correct legal standard by failing to determine the value of the donated easement by the before and after valuation method, failed to value contiguous parcels owned by a partnership, and assumed development that was not feasible on the subject property. The Court specifically stated that the appraiser qualifications were not in question. What motivated the Court to reject Boltar’s appraisals was the multiple failures and abuses in the appraisal methodology as well as significant factual errors affecting value. The Court stated, “The problem is created by their willingness to use their resumes and their skills to advocate the position of the party who employs them without regard to objective and relevant facts, contrary to their professional obligations.” And later, “…we need not blindly admit absurd expert opinions.” And finally, ” In addition, the cottage industry of experts who function primarily in the market for tax benefits should be discouraged.” At least from the context of the decision, the Court appears to be directing the last comment at those who enable abusive appraisals and tax schemes. Learn more by visiting http://taxtrials.com/, then click on Boltar. Note that this site has many tax opinions available.
View the Practical Pointers Factsheets to help you and your land owners avoid trouble with the IRS, or login to The Learning Center to browse the Conservation Defense Practical Pointer Collection, which includes help on Form 8283, Baselines to ‘Wow’ the IRS, Contemporaneous Written Substantiation, Lender Agreements and Kaufman, Stewardship Contributions and Appraisal Checklists and Rules.
]]>The Coalition to Save Community Benefits was formed to oppose this effort and has been working with groups like yours to ensure that the FHFA understands the consequences of this Proposed Rule. Your comments about this Rule are so important to the process.
We urge you to submit additional comments to the FHFA. THE COMMENT PERIOD CLOSES ON APRIL 11, 2011. You can submit comments through our website at http://www.savecommunitybenefits.com/take-action.shtml for your convenience.
This article is an update to the original post dated October 20, 2010:
Fannie and Freddie Propose Ban on Charitable Transfer Fees
October 20, 2010 | Washington, D.C.
Thousands of organizations have protested the proposed elimination by the Federal Housing and Finance Agency (“FHFA”) of lending on any property that has a private transfer fee covenant. Many land trusts use such funds for stewardship, restoration and acquisition.
Working with the Realtors Association, FHFA, the parent agency of Fannie Mae and Freddie Mac, as well as the Federal Home Loan Banks, has issued a proposed guidance document for public comment that would effectively eliminate the use of all Private Transfer Fees (“PTFs”). If allowed to become effective, the rule removes a critical funding mechanism for conservation, affordable housing, and community infrastructure.
Congresswoman Maxine Waters and Co-Sponsors Sherman, Sires, and Gwen Moore introduced the Homeowner Equity Protection Act of 2010 to ban all private transfer fees. It is being portrayed as consumer protection from predatory scheme that forces homeowners to pay for the right to sell their own properties. It does not address charitable transfer fees, but the coalition is working with Waters to insert such language.
Many land trusts use transfer fees to fund, and often times fully fund, conservation easement stewardship. Land trusts are now more aware than ever that the actual costs of stewardship and legal defense are significant. Granting landowners are limited in their ability to pay to fully fund all stewardship and legal defense expenses for a conservation easement of fee donation. More land trusts are exploring transfer fees as an additional tool to help close this funding gap.
Many land trusts have been using a transfer fee for years, and therefore risk losing a potential long term source of stewardship and other funding. These fees properly used fund community programs and unique community benefits.
Realtors in several states have also been pursuing legislation to prohibit transfer fees at the state level. Such legislation has been successfully defeated (SC) or modified (NC, IL and CA). Other states have blanket prohibitions (TX, MO, FL and OR). Check your state law on this issue so you are not surprised in your state.
A coalition of concerned charitable organizations, government agencies and others is working on the issue. The Coalition is also working to insert exemptions for
View more information and a list of coalition members.The Alliance is working on this issue by informing its members, joining the coalition and calling supporters.
Developers and investors are securitizing transfer fees to generate long-term income streams for their private benefit. An example of this is Freehold Capital Partners of New York. This use of securitized PFTs angered home buyers and realtors.
The FHFA needs to hear from you. Request that the FHFA:
Submit comments as follows:
Via E-mail: regcomments@fhfa.gov
Reference: “Guidance on Private Transfer Fee Covenants, (No. 2010-N-11)” – include this in the subject line.
Via Mail/Hand Delivery:
Address: Alfred M. Pollard
General Counsel, Federal Housing Finance Agency
Fourth Floor
1700 G Street, NW
Washington, DC 20552
Reference: “Guidance on Private Transfer Fee Covenants, (No. 2010-N-11)” – include this in the subject line.
Via Federal eRulemaking Portal:
Federal eRulemaking Portal: http://www.regulations.gov/search/Regs/home.html#documentDetail?R=0900006480b316f0
Ask your Members of Congress to write to FHFA to request both a comment extension and a charitable exemption.
Connect with your local affordable housing groups and government housing agencies. Ask them to write a letter to FHFA too.
Tell your land trust colleagues about this and share the talking points so everyone can take informed action.
Join the coalition. Click on the hotlink to submit your organization’s logo. Then click on the ‘send a message’ link to send an email directly to FHFA. It is fast and easy.
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The final reading for this proposal is the summer of 2011 so time is short to send comments.
The drafting committee chair has asked conservationists to please send in comments and suggestions on this proposal to kburnett@webbnetlaw.com or you can write to the full committee at: kieran.marion@uniformlaws.org. Please include the name of the committee (Charitable Assets) in the Subject line of your email.
Each state has designated commissioners to the National Conference of Commissioners on Uniform State Laws that you can also contact. You can write to your commissioner at kieran.marion@uniformlaws.org. Please include the name of the committee (Charitable Assets) and your state in the Subject line of your email. View the state list of commissioners.
Nancy McLaughlin and Bill Weeks reviewed the interconnection of the various laws and proposals including the above and the Uniform Trust Code and common law doctrines for their Rally 2010 workshop on Administration of Charitable Assets. View links to various state versions of Uniform model laws see.
