Big tax breaks on conservation easements draw IRS scrutiny

[April 30, 2021]  By Jaimi Dowdell and Joseph Tanfani

(Reuters) - In recent decades, conservation easements have succeeded in saving millions of acres of open space and wildlife habitat in the United States, becoming the leading method of preserving land from development.

These easements also have generated billions of dollars in tax deductions for wealthy owners and developers, sometimes for properties with little or no public benefit, according to tax authorities, tax law specialists and Congress members.

Historically, government agencies handled conservation. But Congress in 1980 made tax deductions for conservation easements a permanent part of the U.S. tax code. Since then, private landowners have increasingly taken deductions in exchange for their promise not to develop their land.

While many property owners are motivated by conservation concerns, others are attracted by financial incentives. Tax laws say that the owners must get an appraisal to support the value of the donation, which should be the difference of the fair market value of the property before and after the donation. But the appraisals are often inflated, according to tax law specialists and the Internal Revenue Service (IRS).

“We have seen taxpayers, often encouraged by promoters and armed with questionable appraisals, take inappropriately large deductions for easements,” the tax agency says on its website.

Authorities in New York are investigating whether former president Donald Trump took improper tax breaks on two conservation easements - a $21.1 million deduction at his Seven Springs estate in New York, and one for $25 million at his driving range at the Trump National Golf Course near Los Angeles.

The IRS began reporting information on conservation easements in 2003. That year, more than 2,000 people filed returns that included deductions for easements totaling $1.5 billion. By 2018, the most recent data available, the number of deductions rose to 10,000 and the amount claimed jumped to $6.5 billion.

Advocates for the conservation tax breaks say the easements have been a valuable tool in preserving open space and habitats.

The Internal Revenue Service (IRS) building is seen in Washington, U.S. September 28, 2020. REUTERS/Erin Scott/File Photo

The public gets a commitment that a particular property will never be developed, said Sylvia Bates, director of standards and educational services for the Land Trust Alliance, an association that represents land trust organizations. “This ensures that the land will always remain as a working farm, forest land, wildlife habitat or another place important to the community.”

A bipartisan Senate panel, however, found last year that the generosity of the conservation tax break had given rise to a practice called syndicated easements, in which investors purchase a stake in a property with the expectation that the land will be donated for conservation. They get a large tax deduction in return. The report found widespread abuses, including inflated appraisals and fraud. This month, the IRS announced the creation of a new office to target these deals and other abusive tax schemes.

The IRS has also scrutinized the public benefit of conservation easements on golf courses, like the one taken by Trump. The agency has rejected tax deductions for some donations on courses, which are technically already developed and often require the application of chemicals to maintain greens and fairways, raising questions about the environmental benefit of an easement.

The IRS, for instance, denied a $7.9 million deduction for easements placed on a golf course in North Carolina that were designed to conserve open space and wildlife habitat. According to court records, an expert witness for the IRS observed very little wildlife when surveying the property in 2013. He noted that the golf course employed a border collie to eliminate any geese from the grounds.
 

(Reporting by Jaimi Dowdell and Joseph Tanfani; editing by Jason Szep and Brian Thevenot)

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