Sunday, March 18, 2012

The Conservation Easement Tax Expenditure: In Search of Conservation Value

Roger Colinvaux, Associate Professor of Law at The Catholic University of America, Columbus School of Law, and former Legislation Counsel with the Joint Committee on Taxation has published The Conservation Easement Tax Expenditure: In Search of Conservation Value, 37 Colum. J. Envtl. L.1 (2012).

Professor Colinvaux argues that a fundamental problem with the current conservation easement tax expenditure (the charitable income tax deduction under IRC § 170(h)) is that the measure for the tax benefit – lost economic development value – is erroneous. He argues that the measure for the tax benefit should be changed to one that better approximates conservation value. He also argues that serious consideration should be given to converting the deduction to a credit.

Some of the ideas for the tax credit Professor Colinvaux proposes include:

  • Prioritization of conservation purposes, with conservation easements designed to protect ecosystems being eligible for the highest credit percentages.
  • Maintenance of the perpetuity requirement, in part, because conservation is undervalued by the private property system and “perpetual easements are like affirmative action for conservation; normal rules are switched off to redress a perceived land use imbalance in favor of development.”
  • Suspension of a land trust’s ability to accept new credit-eligible donations if an audit of the organization reveals repeated failures to enforce easements or an unsustainable ratio of easements held to available resources.
  • Availability of higher credit percentages for donations for which a publicly available “conservation appraisal” indicates good conservation outcomes, with factors of importance potentially including whether the state attorney general has unambiguous power to enforce conservation easements, whether there is a history of enforcement in the state, and whether the state has a public registry tracking easements.

NAMcL

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Comments

Perhaps it should be an addressed from both perspectives. If the conservation qualities are lower, yet the landowner is still giving up high value development rights, the compensation would be understated if only valued on the conservancy, and overstated if based off 100% of the unencumbered market value. On the other hand, a rural tract in a less demanding area could have low to average development value, yet an extremely high conservancy value. This is true for many easements I have valued in Wisconsin. The way it's done right now, the value of what is perpetually conserved is not only understated, but unaddressed. Right now the value of the donation is based only off present economics when in fact the donation itself is a function of a perpetual ecosystem. The development rights are relative to current supply and demand, while the conservancy lasts forever. I completely agree with your argument. It is my opinion that the development rights should remain an allowable deduction and the conservancy value should be an additional credit based on a separate valuation. This would continue to attract land conservations but would create even more demand for higher quality projects.

Posted by: gatlin fenwick | Mar 23, 2012 6:48:34 AM

Perhaps it should be an addressed from both perspectives. If the conservation qualities are lower, yet the landowner is still giving up high value development rights, the compensation would be understated if only valued on the conservancy, and overstated if based off 100% of the unencumbered market value. On the other hand, a rural tract in a less demanding area could have low to average development value, yet an extremely high conservancy value. This is true for many easements I have valued in Wisconsin. The way it's done right now, the value of what is perpetually conserved is not only understated, but unaddressed. Right now the value of the donation is based only off present economics when in fact the donation itself is a function of a perpetual ecosystem. The development rights are relative to current supply and demand, while the conservancy lasts forever. I completely agree with your argument. It is my opinion that the development rights should remain an allowable deduction and the conservancy value should be an additional credit based on a separate valuation. This would continue to attract land conservations but would create even more demand for higher quality projects.

Posted by: gatlin fenwick | Mar 23, 2012 6:52:40 AM

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