Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Monday, January 9, 2012

Taxpayers Denied Conservation Easement Deductions

DeniedKayln Carpenter, Scott Van Wyhe, and John and Sharon McSween purchased tracts of land in Teller County, Colorado on December 23, 2003. The next day, the parties conveyed the easements to a Colorado non-profit that focuses on natural resource conservation. The conservation easement deeds included an extinguishment provision, providing that the “conservation easement can be terminated or extinguished, whether in whole or in part, by judicial proceedings, or by mutual written agreement of both parties, provided no other parties will be impacted and no laws or regulations are violated by such termination."

Carpenter and Van Wyhe claimed a $385,600 and $272,998 deduction, respectively, for the year 2004. The McSweens reported a $336,500 deduction on both their 2003 and 2004 joint tax returns. The IRS denied the deductions under Reg. 1.170A-14(g)(6)(i) which states that conservation easements must be granted in perpetuity.

In Kayln M. Carpenter et al. v. Commissioner, T.C. Memo. (3 Jan. 2012), the Tax Court upheld the denied charitable deductions, noting that Sec. 170(h)(1) requires that a taxpayer give a qualified property interest to a qualified organization in a deed that states the gift is exclusively for conservation purposes. The court also noted that the perpetuity requirement must be legally enforceable and may not included “uses of retained interest inconsistent with the conservator purposes of the donation." The court ultimately held that, though the deed conveying the property indicated an intent “to preserve and protect in perpetuity the conservation values of the property,” the taxpayers retained various rights that caused the conveyance to fail the perpetuity requirements of Reg 1.170A-14(g).

See Conservation Easement Deduction Denied, Crescend0 Interactive, Jan. 8, 2012. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

https://lawprofessors.typepad.com/trusts_estates_prof/2012/01/taxpayers-denied-conservation-easement-deductions.html

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