Conservation Easements: Almost Is Not Good Enough

shutterstock_87564625Conservation easements continue to generate litigation because many of the transactions did not follow the regulations stringently. The latest mishap involved taxpayers whose easement had sloppy language addressing the prospect that the easement might be extinguished because the property could no longer be used for conservation purposes; as a result, the deduction for the value of the easement was disallowed. Carroll v. Comm’r, No. 5445-13, 2016 U.S. Tax Ct. LEXIS 14 (Apr. 27, 2016).

Normally, a donation of property to a charity will not trigger a deduction unless the donor transfers her entire interest in the property. I.R.C. § 170(f)(3).… Read More

Follow The Rules: Another Conservation Easement Mess.

Section 170(h) of the Internal Revenue Code permits a taxpayer to claim a charitable deduction for donating property without transferring title. This can be done through a qualified conservation easement, which grants a permanent restriction on property, I.R.C. § 170(h)(2)(C),  for conservation purposes, I.R.C. § 170(h)(4)(A), to an appropriate charitable organization, I.R.C. § 170(h)(3). The taxpayer is then entitled to deduct the value of the easement. See I.R.C. § 170(f)(3)(B); see also Treas. Reg. § 1-170A-14(a).

This area has seen a fair volume of litigation recently, and last week the Ninth Circuit addressed a recurring problem: to meet regulatory requirements, any mortgage on the property must be subordinated.… Read More

Don’t Ignore the Obvious: A Story About A Conservation Easement and A Penalty.

Qualified conservation easements provide a deduction under Section 170(h) of the Internal Revenue Code to a taxpayer who permanently encumbers her property in favor of an appropriate organization for conservation purposes. I.R.C. § 170(h). There are some complex rules at work in this area, and it has generated a fair amount of litigation. A key factor in conservation easements is valuation; the amount of the deduction is driven by the impact on market value that a conservation easement has. Consequently, the Code requires an appraisal to support the deduction. I.R.C. § 170(f)(11).

Last week the First Circuit took up the case of a Boston couple who had an appraisal to support the value of their conservation easement deduction but wound up losing not only the deduction but paying a forty percent penalty for a gross valuation misstatement.… Read More

Conservation Easements: Strict Compliance is Required.

Qualified conservation easements permit a taxpayer to obtain a charitable contribution deduction even though she has not parted with ownership of the property. The basic elements seem straightforward: if you grant a perpetual restriction on property for conservation purposes to a charitable organization, you may qualify under Section 170(h)(1) of the Internal Revenue Code. The interest, however, must be “protected in perpetuity.” I.R.C. § 170(h)(5)(A).

A recent Tenth Circuit case reveals how this final requirement can create practical problems. Mitchell v. Comm’r, 2015 U.S. App. LEXIS 116 (10th Cir. Jan. 6, 2015). The Mitchells created a conservation easement, restricting development of a large parcel of unimproved land, and granted it to a land conservancy in perpetuity.… Read More

Be Careful What You Ask For: Charitable Deductions and Donor Benefits.

Qualified conservation easements have generated a number of cases recently, primarily focused on the technical requirements for the appraisal and related issues. A recent case from the District of Idaho raises a more fundamental question: whether a conservation easement was a charitable gift at all. The government’s theory was that the easement was part of a larger quid pro quo transaction and therefore did not meet the basic requirement of donative intent. Pesky v. United States, 2013 U.S. Dist. LEXIS 96097 (D. Id. July 8, 2013).

The case revolved around a property in Ketchum, Idaho that apparently was next to Ernest Hemingway’s Sun Valley home.Read More