August 8, 2011
Gerzog, McLaughlin, Owley, and Wolf on Conservation Easements
This summer has seen several articles posted on various aspects of conservation easements. Here are the authors, titles, and abstracts:
This article reviews Kaufman and the Tax Court’s reconsideration of its summary judgment decision that rejected the taxpayers’ deduction for a facade easement charitable deduction. The issues newly considered are the deductibility of the taxpayers’ required cash payments to the charity in connection with obtaining a facade easement charitable deduction and the application of various penalties.
This article is the second of two companion articles. The first article analyzed the requirements in Internal Revenue Code section 170(h) that a deductible conservation easement be “granted in perpetuity” and its conservation purpose be “protected in perpetuity.” That Article concluded that section 170(h) and the Treasury Regulations should be interpreted as establishing uniform national perpetuity standards for tax-deductible conservation easement donations.
This second article surveys the over one hundred statutes extant in the fifty states and the District of Columbia that authorize the creation or acquisition of conservation easements. This article concludes that, to be eligible for the federal subsidy under section 170(h), conservation easement donors should be required to satisfy both federal tax law and any state enabling statute requirements relating to the transfer, release, modification, or termination of conservation easements. This article also recommends that the IRS issue guidance regarding satisfaction of the federal perpetuity requirements to promote more efficient and equitable review, interpretation, and enforcement of federally subsidized conservation easements.
Conservation easement use is growing rapidly, as is the number of organizations looking to the tool to meet land conservation needs. Until recently, tribes had not been involved in conservation easement transactions. This book chapter examines the most common way tribes have become involved in conservation easement transactions — tribes as conservation easement holders.
The chapter examines why tribes decide to hold conservation easements, looking at the choice to use conservation easements generally and then situating the decision in the evolution of property law in the United States both on and off tribal land. Conservation easements are a uniquely American form of property that emerge from Lockean roots and embrace a libertarian notion of property rights. In that light, tribal embrace of the tool may seem surprising as these notions of property have done harm to tribal sovereignty and may be at odds with some traditional tribal practices.
The chapter concludes by asking whether tribes should use conservation easements. Wrapped up in this question is an assessment of the conservation easement tool generally as a vehicle for long-term land protection. The strength of the conservation easement tool is that it gives government entities the ability to extend their land conservation and environmental stewardship roles beyond their jurisdictional boundaries. Tribes may not have the power to regulate land use in nearby communities, but they can acquire conservation easements over such land and obtain similar results. Thus, despite some discordance due to the anticommunitarian sentiments at the heart of conservation easements, the conservation easement tool may provide tribes with an avenue for furthering tribal goals of conservation and intergenerational equity.
The Internal Revenue Code and associated IRS regulations provide a myriad of federal tax benefits to the donors of conservation easements to non-profit organizations. The tax benefits are all deductions or exemptions. Their value thus varies with both the value of the easement donated, determining the magnitude of the deductions and exemptions, and the income and assets of the donor, determining the impact of the deductions and exemptions on the donor’s tax bill. This situation places two degrees of separation between the notional conservation “value” preserved by the easement and the amount “paid” by the federal government in the form of tax incentives: (1) the difference between the conservation value protected by the easement and the IRS’ development value-based valuation; and (2) the difference between the IRS’ development-based valuation and the NPV of the associated tax benefits to the donor.
Many commentators have focused on (1), proposing a variety of valuation models that quantify the value of ecosystem services or other benefits afforded by conservation easements. I focus on (2), showing that the value of the tax benefits relative to the value of the easement increases dramatically with income and assets of the donor, factors that have no bearing on the conservation value protected by the easement. I argue that such a scheme is not optimized to provide the maximum “additional” conservation benefit because the wealthy do not have a lesser appreciation for conservation and thus do not need a greater inducement. To the extent the government provides tax benefits to encourage the donation of conservation easements, it should pay the same amount for any two easements of the same value. The most obvious way to achieve this is to replace the multiple tax deductions and exemptions with a single refundable tax credit that is a fixed percentage of the value of the easement.
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