In recognition of our need to preserve our heritage, Congress allowed an income tax deduction for owners of significant property who give up certain rights of ownership to preserve their land or buildings for future generations.
The IRS has seen abuses of this tax provision that compromise the policy Congress intended to promote. We have seen taxpayers, often encouraged by promoters and armed with questionable appraisals, take inappropriately large deductions for easements. In some cases, taxpayers claim deductions when they are not entitled to any deduction at all (for example, when taxpayers fail to comply with the law and regulations governing deductions for contributions of conservation easements). Also, taxpayers have sometimes used or developed these properties in manner inconsistent with section 501(c)(3). In other cases, the charity has allowed property owners to modify the easement or develop the land in a manner inconsistent with the easement’s restrictions.
Another problem arises in connection with historic easements, particularly façade easements. Here again, some taxpayers are taking improperly large deductions. They agree not to modify the façade of their historic house and they give an easement to this effect to a charity. However, if the façade was already subject to restrictions under local zoning ordinances, the taxpayers may, in fact, be giving up nothing, or very little. A taxpayer cannot give up a right that he or she does not have.
Additional Information
The Pension Protection Act of 2006 enacted several provisions to encourage conservation contributions while limiting abuses.
Notice 2007-50, Guidance on percentage limitations imposed by Code section 170(b)(1)(E) on qualified conservation contributions made by individuals.
Remarks of Steven T. Miller, before the Spring Public Lands Conference, Washington, DC (Mar. 28, 2006)
Remarks of Steven T. Miller, before the Land Trust Alliance, Madison, Wisconsin (Oct. 17, 2005)
Testimony of Steven T. Miller on the Tax Code and Land Conservation, before the Senate Finance Committee (June 8, 2005)
IR-2005-19, News release announcing “dirty dozen” tax scams, including contributions of historic facade easements (Feb. 28, 2005)
Remarks of Steven T. Miller, before the American Society of Appraisers (Oct. 22, 2004)
Notice informing taxpayers of the potential adverse tax consequences of certain transactions involving conservation easements Notice 2004-41
Charitable Contributions and Conservation Easements Notice 2004-41 (PDF 64K)
DISCLAIMER: This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.
