Ruminating on the IRS tax shelter notice

On December 23, the IRS published a notice making conservation easement tax shelters "listed transactions." Now, after some time to digest this action by the IRS and to listen to initial feedback from the land trust community, I'd like to expand on my previous blog post.

The notice addresses head on our concern that promoters have been making money off of what are supposed to be charitable donations of conservation easements. In particular, it focuses on pass-through entities that use promotional materials promising substantial financial returns to investors based on inflated easement appraisals.

These criteria get to the heart of the matter without overreaching. As such, the notice should have a chilling effect on conservation easement transactions that disguise a profitable tax shelter as a charitable donation, while not discouraging donations by donors acting with true charitable intent. This is good news for land trusts and for all who care about land conservation.

Moreover, the notice leaves alone the sorts of transactions that are the bread and butter of land trusts, including donations by individuals and families or family partnerships. And the notice does not impose any new reporting obligations on land trusts.

While we acknowledge that the IRS notice is an important development, we believe additional actions may be necessary. Promoters could very well continue making these deals due to the substantial profits they offer. Thus, any prospect of audits or punitive actions by the IRS may simply not be enough to completely quell these transactions that represent such a risk to the land trust community's reputation. So we all need to remain vigilant.

The Land Trust Alliance will keep you abreast of any significant developments regarding the IRS notice and the transactions it targets, and I ask that you communicate back to us any concerns you or potential conservation easement donors have about the notice. Please feel free to contact Russ Shay, Leslie Ratley-Beach or me.

Andrew Bowman is president of the Land Trust Alliance.