The IRS is really cracking down on deductions for conservation easements. There have been a lot of court cases about it since 2010. If you’re thinking about doing a conservation easement or have one already, it’s important to stay up to date with the latest rulings and understand how they fit into the law. This article gives an overview of the recent changes. In 1976, Congress passed a law allowing people to get a tax deduction for donating land for conservation. This means that they give up some rights to use the land in order to protect it. The IRS is now looking more closely at these donations to make sure they are really helping the environment and that they are worth what the donor claims. To get the tax deduction, the donation must meet certain requirements, like being given to the right kind of organization and being only for conservation. The IRS is also now looking at whether the donated property meets the rules for a conservation donation. If you want to get a tax deduction for donating a conservation easement, it has to be for a specific conservation purpose and that purpose has to be protected forever. The conservation purpose could be for things like preserving natural habitats for plants and animals, providing outdoor recreation, or protecting historical sites. Recent court cases have shown that even small areas of land can qualify for this tax deduction as long as they meet the conservation purpose requirements. The size of a conservation easement doesn’t matter as long as the purpose of conservation is not undermined. If your land has a mortgage, the mortgage holder must agree to prioritize the conservation purposes over the loan. And finally, you can only claim a tax deduction for donating a conservation easement in the year it is officially recorded, not when it is given to the charity. A partnership in New York City donated a conservation easement to a charity in 2004, but it wasn’t officially recorded until 2005. Because it wasn’t protected forever at the time of the donation, the partnership couldn’t claim a tax deduction for it. Also, if the easement is ever removed (for example, if the building is demolished), the charity, not the partnership, must receive any money from the removal. If something happens that makes it impossible to keep using the land for conservation, the conservation can still be considered protected forever if the restrictions are lifted by a court, and if the proceeds from selling the land are used for conservation. This is to make sure taxpayers don’t make money if the land is destroyed, and to make sure the charity can use the money to help preserve other land. In one case, the court said the charity didn’t need to get the money before anyone else, as long as they still got their fair share. In a court case, it was decided that a charity could still get a tax deduction for protecting farmland, even if they had to pay back the government if the protection was cancelled. Another court case said that a clause in a protection agreement can’t be used to save a tax deduction if it doesn’t qualify. And the law says that changes to a protection agreement shouldn’t take away the requirement that it’s only for conservation. In Commâr v. Simmons, a taxpayer donated easements on historic properties in Washington, D.C. and claimed a tax deduction. The IRS wanted to disallow the deduction because the easements could be changed or abandoned. But the court ruled in favor of the taxpayer, saying the easements did enough to protect conservation purposes. The court noted that the organization in charge of the easements had a good track record and would risk losing its tax-exempt status if it didn’t enforce the easements. Ultimately, the court said the easements did what they needed to do to preserve the historic properties. The IRS tried to disallow a deduction for a donation because they thought the charity could change the terms of the donation. The court said that the IRS was being unreasonable and that the purpose of the donation was to help the environment. The donated land has to be restricted in its use, and the restrictions have to be enforceable by law. The courts have also said that the donated land cannot be changed or substituted for other land. In Belk, the taxpayers donated a conservation easement over a 184-acre golf course and tried to claim a charitable deduction. But the IRS said no because the taxpayers could change the property subject to the easement. The court agreed with the IRS, saying that the property boundaries had to be fixed at the time of the donation. Similar cases have also been decided against taxpayers who reserved the right to change the boundaries of their easements. So, if you want to claim a tax deduction for donating an easement, the property boundaries have to be set in stone from the start. The IRS has a strict view on conservation easements, and they are likely to challenge any contributions. If you’re thinking about contributing a conservation easement, make sure you understand all the rules and be prepared for a potential battle with the IRS. There are specific requirements that must be met in order to qualify for a tax deduction, and the IRS is actively looking for ways to deny these deductions. So, it’s important to be well-informed before making any decisions about contributing a conservation easement. Conservation easements can provide both non-economic and economic benefits. Non-economic benefits include preserving land and wildlife and keeping it in the family. Economic benefits include tax deductions and incentives. To claim a deduction, a taxpayer must get a written acknowledgment from the charity, attach a form to their tax return, and get an appraisal if the easement is worth more than $500,000. The organization receiving the easement must be qualified, and there are rules about subordinating mortgages and substituting land. Some court cases have shown that not following these rules can affect the deductibility of the donation. Conservation easements can be changed or ended just like other easements, and Micah G. Fogarty is a lawyer in Tampa who focuses on tax law. This information is from the Tax Law Section of The Florida Bar.
Source: https://www.floridabar.org/the-florida-bar-journal/navigating-irs-challenges-to-conservation-easements/
Leave a Reply