On November 28, 2017, Congress introduced the bipartisan Charitable Conservation Easement Program Integrity Act of 2017. This crucial legislation addresses an urgent concern for our community and requires your support. To take action, click here.
This holiday season, the land trust community has much to be thankful for, including federal tax incentives for conservation easement donations. But this is also a season marked by overindulging, so let me tell you a cautionary tale of gluttony. It all revolves around syndicated easement transactions in which pass-through entities promote conservation easement donations to passive investors using a promise of profits.
The Land Trust Alliance has been worried about these transactions for years because they put at risk the reputation of the land trust community — and potentially the federal tax deduction for conservation easement donations. It's why I have told this story once or twice. It's why the Alliance issued a tax shelter advisory to our member land trusts to help them identify and avoid these transactions. And it's why the revised Land Trust Standards and Practices, adopted February of this year, include a new Practice 10C4 that is designed specifically and explicitly to prevent our land trust members from becoming involved with these transactions.
Why are we concerned about these transactions? Because they are antithetical to the concept of charity that Section 170(h) of the federal tax code was designed to reward. IRS data released earlier this year show that a sampling of recent transactions enabled short-term investors to claim, on average, federal tax deductions valued at nine times the amount of their original investment. And the bloated nature of these transactions also appears to be showing up in the amount of federal deductions that taxpayers are claiming from the donation of conservation easements. In the most current data available, the value of conservation easements donated nearly tripled — from $1.1 billion to $3.2 billion — from 2013 to 2014.
You might think these numbers are inflated, but they are real. You can see the IRS data here.
We were heartened when the IRS issued a notice in December 2016 that made these deals "listed transactions." This notice requires people who package, promote and invest in these transactions to report those activities to the IRS. Furthermore, the document puts those people on notice that the IRS intends to challenge the deals as "tax avoidance transactions."
It was our hope that, by dragging these transactions into the light of day, the IRS notice would effectively end them. But, unfortunately, the promoters have been determined to keep this damaging business model alive. Throughout this year, they have worked to delay the effective date of the notice and lobbied Congress to stop the IRS in its tracks. And pending legislation approved in the House — but not yet the Senate — would effectively prevent the IRS from enforcing the notice.
These actions have made clear that Congress must act to stop these transactions. Fortunately, Reps. Mike Kelly of Pennsylvania, a Republican, and Mike Thompson of California, a Democrat, have introduced House Resolution 4459 to do just that. In a nutshell, this bipartisan bill strikes down people's ability to make a profit from the donation of a conservation easement. And because the bill is smartly written, it takes care to create an important exception for family partnerships. For the vast majority of land trusts — those working alongside donors motivated by genuine generosity and the best impulses of this season — this bill enacts no change. It simply stops those who would overindulge by claiming a profit through the donation of a conservation easement on land held for a short period of time.
All of us at the Alliance sincerely hope this bill will become law. But that outcome is far from assured. The promoters of these transactions will do all they can to stop this legislation, even if it means casting the Alliance as a villain opposed to using partnerships to advance conservation. But nothing could be further from the truth. It's not the partnerships that concern us; it's the profiteering.
Beginning today, we call on our land trust members and supporters to advocate aggressively for passage of this legislation. We cannot allow these deals and the associated gluttony to continue. Please join us in seizing this opportunity to put an end to these transactions. We may not get another shot.