IRS and DOJ Target Abuse of Conservation Easements

Purpose

The Internal Revenue Service (IRS) and the Department of Justice (DOJ) are dedicating a large amount of their resources to combat the abuse of conservation easements. Conservation easements are meant to protect specific attributes of the property such as natural resources or historical infrastructure. While the IRS focuses on qualifications for the tax break, the Department of Justice monitors the appraisals of such qualifying properties to regulate promoters of such conservation easement transactions. Here, Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains how to qualify for a conservation easement tax deduction and the intricacies of reporting the necessary information to the IRS.

What is a Conservation Easement?

Conservation easements are voluntary legal agreements by which property sites are protected and preserved through a regulation of land use. To be legally binding, they must contain restrictions enforceable by the donee organization. While conservation easements maintain the sites of valuable resources and historical venues, there are also tax benefits for the donor. Federal income tax and estate tax deductions may be available for qualifying properties as a charitable contribution. 

Qualifying for a Conservation Easement Tax Deduction:

In order to claim a charitable contribution deduction for a conservation easement, taxpayers must meet the statutory requirements applicable to all charitable contributions as well as specific requirements for conservation easement donations. These requirements include: 

1. Qualified Organization: A taxpayer can only deduct contributions made to organizations eligible to accept tax-deductible contributions, which are organizations described in IRC 170(c). Generally, a qualified organization is a public charity or a government unit. 
2. Charitable Intent: A charitable contribution is a donation or gift to, for the use of, a qualified organization. It is voluntary and made without receipt, or expectation of receipt, of anything of economic value in return.
3. Real Estate Contribution Exception: To override the transfer that occurs in a contribution of real estate, there must be a deed signed by the donor transferring the property and acceptance by a qualified organization.
4. Partial Interest Rule Exception: A taxpayer must contribute the entire interest in the property. A qualified conservation contribution is deductible even though it is a partial interest. 
5. Qualified real property interest: The transfer must be one of an entire interest in property except for qualifying mineral interest, a remainder interest in real property, or a restriction on the use of the real property granted in perpetuity.
6. Perpetuity: A conservation easement must be granted, protected, and enforceable in perpetuity. “Perpetuity” simply defined means the condition will not vest or end within a certain period. These rights continue no matter who owns the land.
7. Exclusively for conservation purposes: These purposes include but are not limited to outdoor recreation, protection of a natural habitat, or preservation of an open space for scenic enjoyment by the general public or pursuant to a clearly delineated Federal, State, or local governmental conversation policy. 

Qualifying real properties granted in perpetuity will provide the holder, or organization to which it is conveyed, the interest in real property and the right to enforce any of its terms regarding the easement. These requirements differ and depend upon the conservation purpose of the easement. For example, some conservation easements are in place to improve water quality while others maintain scenic views visible to the public. A conservation easement runs with the land, meaning it is binding on all future owners of the land. This tool allows for not only private ownership of land but also the continuation of benefits to the surrounding area. 

Request a Consultation with Washington D.C. Tax Attorney Kevin E. Thorn

The IRS and DOJ are allocating numerous resources in the prevention of the abuse of conservation easements. If you have questions about the tax laws that pertain to conservation easements in the United States in relation to your property, please contact the Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, located at 1775 Eye Street NW, Suite 1150, Washington, DC 20006, call 202-957-6042, email ket@thornlawgroup.com or contact us confidentially online today.