By Michele S. Byers
Since the 1970s donations of land and interests in land, known as conservation easements, have benefited from a federal conservation tax deduction. The tax deduction incentive has proven enormously successful and popular across the nation. In fact, the conservation easement tax deduction is one of America’s most valuable tools for encouraging landowners to preserve property with high conservation value.
In New Jersey, thousands of acres of natural land – forests, meadows, marshes and buffers surrounding rivers and streams – have been permanently preserved through legitimate conservation easement donations.
A conservation easement is a legally binding agreement to permanently protect natural resources like farmland, forests, wetlands, and recreational lands. Conservation easement donations are popular because a landowner is able to retain ownership of the land while donating the permanent rights to develop the property to a qualified government agency or nonprofit organization. The conservation agency then retires the development rights and ensures that the conservation easement restrictions are upheld.
Because permanent restrictions often reduce the value of the land, the federal government’s conservation tax program allows the difference in value to be a qualified tax deduction.
Most folks who donate conservation easements are motivated by a desire to make sure their land is never developed. The financial incentive of a tax deduction is a bonus.
Unfortunately, this tax deduction is being exploited in some instances by those motivated by profits instead of the public good.
The Land Trust Alliance, a national organization supporting land conservation nonprofits, has warned for years of an abusive scheme that takes advantage of federal tax benefits from conservation easement donations. The alliance has been advocating for a new federal law to crack down on the abuse.
In October, the U.S. Senate Finance Committee released a revealing bipartisan report about the scope and seriousness of this abuse, based on a 16-month investigation.
Here’s how the abusive tax scheme works. Investors buy shares in corporations that hold title to land. After a short holding period, the corporations donate conservation easements to nonprofit land conservation organizations. Tax deductions are then claimed based upon inflated appraisal values, often many times higher than the original purchase price of the land.
As a result of the inflated appraisals, the investors reap tax benefits worth much more than their initial investment, all at the expense of the taxpayer.
According to IRS data obtained by the Land Trust Alliance, 296 of these corporations claimed $9.2 billion in unwarranted deductions in 2018 alone. This abuse of the conservation tax deduction threatens to erode public faith and trust in the many lawful conservation donations.
To combat the abusive tax schemes, Senate Finance Committee Chairman Chuck Grassley (R-Iowa), Sen. Steve Daines (R-Montana) and Senate Agriculture Committee Chairman Pat Roberts (R-Kansas) reintroduced the Charitable Conservation Easement Program Integrity Act, which seeks to close loopholes, save taxpayers billions of dollars and promote legitimate conservation around the country.
When the bill was first introduced in the House in 2019, New Jersey Congressmen Bill Pascrell and Tom Malinowski joined as cosponsors; ideally, they and the entire New Jersey Congressional delegation will cosponsor the recently updated legislation.
“The Charitable Conservation Easement Program Integrity Act will safeguard taxpayers by stopping bad actors from profiteering off the federal conservation tax incentive while allowing conservation donations motivated by charity to continue unimpeded,” said Land Trust Alliance President Andrew Bowman. “This legislation is concise, sensible, and ready for passage.”
The Charitable Conservation Easement Program Integrity Act would generally disallow a charitable deduction if it exceeds 2.5 times a partner’s original investment, and it includes other measures to tighten requirements. The bill preserves the tax deduction for donors with true charity and conservation in mind, including for family farms and ranches.
The vast majority of land trusts preserve land and natural resources for the right reasons: providing habitat for wildlife, safeguarding clean drinking water, protecting against flooding, and providing healthy recreation opportunities to the public. The conservation easement tax incentive has helped tens of thousands of Americans with charitable intent preserve their land.
Your help is needed to pass the Act before the end of 2020 to ensure that tax incentives for land conservation remain available for genuine philanthropists – of which there are many – and that scammers are shut down.
Please ask your Congressional representative and U.S. Senators to support swift passage of the Charitable Conservation Easement Program Integrity Act. To find out how to contact your elected officials, go to www.usa.gov/elected-officials.
To read the report on the Senate Finance Committee investigation, go to www.finance.senate.gov/imo/media/doc/Committee%20Print.pdf.
To learn about the Land Trust Alliance’s efforts to stop conservation easement abuses, go to www.landtrustalliance.org/charitable-conservation-easement-program-integrity-act-advocate-toolkit.
And for more information about preserving New Jersey’s land and natural resources, visit the New Jersey Conservation Foundation website at www.njconservation.org or contact me at email@example.com.
Michele S. Byers is the executive director of the New Jersey Conservation Foundation, Far Hills. She may be reached at firstname.lastname@example.org