Tax Shelter Legislation
The Charitable Conservation Easement Program Integrity Act was first introduced in the U.S. House of Representatives on Nov. 28, 2017, and the U.S. Senate on Feb. 15, 2018. Since then, it has been reintroduced in every session of Congress to address an urgent problem for our community. Unfortunately, the legislation has not yet passed either chamber of Congress. That’s why we need your help.
What’s the issue?
Not all donations of conservation easements are created equal. While the vast majority are truly charitable endeavors, a few bad actors are promoting conservation easement donations as a way for investors to make a fast profit by gaining access to very large federal tax deductions. These transactions are essentially tax shelters and cannot be allowed to continue.
Is the abuse a big problem?
Yes. IRS data released in 2018 show that the average return ratio for the top 10 percent of these transactions enabled investors to claim, on average, deductions valued at more than nine times the amount of their original investment. And the bloated nature of these transactions is costing taxpayers billions of dollars. In the most current data available, close to $36 billion in tax deductions were claimed from 2010 to 2018. In 2016 alone, $6 billion in apparently unwarranted charitable deductions was claimed by participants from just 249 transactions. An additional $6.8 billion was claimed in 2017 while $9.2 billion was claimed in 2018. Sources are here, here and here. Additional background is here.
Has anyone tried to shut down these tax shelters?
Yes. For years, the Land Trust Alliance has pursued a variety of public and private solutions. We have made clear through an advisory to our members, multiple articles in our quarterly magazine and the revised Land Trust Standards and Practices how our members can — and must — avoid these transactions. In December 2016, the IRS categorized these donations as “listed transactions.” This means promoters of and participants in these transactions must report their activities to the IRS or face fines. But despite these and other efforts, the problem persists.
Why does the problem persist?
Simply put, there are millions of dollars to be made from a single transaction. The promoters are highly motivated to keep the game going.
Is the media reporting on this problem?
Yes. Some of the most prominent examples are an investigation jointly published by ProPublica and Fortune magazine and a report by The Wall Street Journal (subscription required). Additionally, local news media such as NPR-affiliated KUAF in Arkansas and The Atlanta Journal Constitution, are increasingly focusing on this issue.
Publications specializing in tax and legal matters, including Bloomberg, also have reported on this issue.
What is Congress doing?
In previous sessions of Congress, members of Congress introduced a simple, smart and effective approach to address this problem. The bipartisan Charitable Conservation Easement Program Integrity Act aims to reward honest philanthropy while shutting down those who would abuse this charitable incentive for profit. The bill is straightforward and narrowly drafted. It disallows a charitable deduction only when a profit is made in a short time from the donation of a conservation easement. To best target the scheme used for tax shelters and to ensure that legitimate conservation transactions are not impacted, the bill focuses on transactions that generate profits over a short period of time (three years or less) and also includes an exception for family partnerships.
In addition, in March 2019, the U.S. Senate Finance Committee led by Senator Chuck Grassley (R-Iowa) and Ron Wyden (D-Oregon) launched an investigation into 14 individuals associated with these abusive transactions. As part of the investigation, the Committee issued six subpoenas demanding recipients provide information about these transactions. That investigation yielded in August 2020 a thorough and revealing report detailing abuse of the federal conservation tax incentive. A copy of the Committee’s report can be found here.
What is the IRS doing?
Since categorizing these donations as “listed transactions” in 2015, the IRS has worked aggressively to seek justice and protect taxpayers. Over the last several years, the IRS has continued to provide the U.S. Senate Finance Committee with data illustrating the continuing cost of abuse. Additionally, in November 2019, the agency announced increased enforcement actions. In June 2020, the agency issued a settlement offer to certain taxpayers involved in syndicated conservation easement transactions. Shortly thereafter, during a June 2020 Senate Finance Committee hearing, IRS Commissioner Charles Rettig confirmed the agency’s commitment to halting the abuse and spoke about the need for legislation.
What is the U.S. Department of Justice doing?
Like Congress and the IRS, the U.S. Department of Justice is taking forceful action to crack down on abuse. In December 2018, the Justice Department filed a civil suit against six individuals associated with these abusive transactions. You can learn more about this development here. Moreover, in December 2020, the Justice Department announced the first criminal case in which two people pleaded guilty to conspiring with others to develop, market, promote and sell investments in fraudulent syndicated conservation easement transactions. More information about this development can be found here.
Would the legislative solution impact all partnerships?
Absolutely not. As noted above, family partnerships that are charitable-minded have nothing to fear. The bill isn't looking to stop deals involving land that’s been family-owned for generations and seen a fair rise in value. Rather, the bill addresses deals that are promoted as a way to generate a profit in a short time. Deals where land values rise suspiciously almost overnight are what will be thwarted — not partnerships.
If the Congress doesn’t act, what would happen?
As these transactions continue, they pose a profound threat to the land trust community. Without action, billions of dollars will continue to flow out of the federal coffers and the IRS will be forced to spend years in court resolving the issue. This would delay and, ultimately, imperil efforts to recapture the lost taxpayer revenue. And even worse, it’s easy to imagine a scenario in which Congress could reduce or even erase federal tax incentives for conservation easement donations. We cannot let that happen. The Charitable Conservation Easement Program Integrity Act might be our last opportunity to stop this from happening.
Yikes! What can I do?
We need your help now to encourage Congress to introduce companion legislation in the House and Senate. Please write your members of Congress and ask him or her to support — or, better yet, cosponsor — legislation to stop people from abusing the conservation easement deduction. The time to act is now.
To identify and contact your member of Congress, click here and enter your ZIP code in the Find Your Representative tool. Search results will provide you with a representative’s email and website. While an email in your own words would be most effective, you can use the following as your starting point:
Dear Senator / Representative [NAME],
I'm writing today to ask for your support for legislation that would stop people from abusing the conservation easement deduction.
I believe strongly in private land conservation and I appreciate the many good economic, health and environmental benefits that land conservation gives us. Land conservation is something that Congress has rightly chosen to support in the past by granting limited financial rewards to honest donors. But I know now that a few bad actors are abusing the system that grants those rewards. This should not be allowed to continue. At the same time, well-intentioned donations should not be hindered.
Please support and cosponsor the reintroduction of the Charitable Conservation Easement Program Integrity Act. This bill is extremely important to me.
Thank you.
What else can I do?
Help demonstrate the importance of the federal tax incentive to members of Congress while you build — or strengthen — your land trust’s relationship with local media. Whenever possible, highlight good examples of how federal tax incentives for conservation easement donations are being used locally. Current and recent examples are strongest, of course, but have past examples ready, too.
More broadly, there are other steps you can take to make your land trust more important to local media. Make sure they’re aware of the work your organization is doing, whether that’s finalizing a new easement or offering events that could be listed in your newspaper’s community calendar. Invite the newspaper’s publisher to visit conserved lands and help build familiarity with your land trust’s work. And be sure your land trust is in their rolodex, so to speak, for the next time they’re reporting on land conservation. The more that media know your land trust is a force for good, the more your entire community benefits.