Thursday, July 26, 2012

McLaughlin: Extinguishment of Perpetual Conservation Easements

Nancy A. McLaughlin (Utah) has published "Extinguishment of Perpetual Conservation Easements:  Charting a Course after Carpenter," in the Florida Tax Review, Vol. 13.  The SSRN abstract on the article is as follows:

In Carpenter v. Comm’r, T.C. Memo. 2012-1, the Tax Court addressed a key aspect of the requirement that the conservation purposes of tax-deductible conservation easements must be “protected in perpetuity” — the manner in which such easements may be permissibly extinguished. This is a critically important issue. Federal taxpayers are investing billions of dollars in conservation easements through the federal charitable income tax deduction under § 170(h), and this enormous investment will be for naught if the permanent protections prove to be ephemeral because the easements are later extinguished or otherwise not enforced. While Carpenter provides some helpful guidance, it also has created confusion and caused some to argue that the process for extinguishment set forth in the Treasury Regulations is optional, and that states, localities, and even holders are free to adopt their own extinguishment procedures. This article examines Carpenter. Among other things, it discusses the holding that the conservation easements at issue constitute restricted charitable gifts, and the critical importance of this status in ensuring that government and nonprofit holders will be legally bound to administer easements in accordance with their stated terms and purposes over the long term. It also explains that the Congress intended to subsidize the acquisition of perpetual conservation easements — or those that are extinguishable only upon frustration of their purposes — and that the provisions addressing extinguishment in the Treasury Regulations should not be considered optional. The article also recommends that Congress, the Treasury Department, and the IRS be proactive in addressing the issues of extinguishment as well as amendment of tax-deductible conservation easements. Without clear guidance on these issues, the purportedly perpetual protections will erode over time, and the enormous public investment in these instruments and the conservation values they are intended to protect in perpetuity will be lost.


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