IRS Private Letter Ruling 201110020

Org was a land conservation and education organization and had received its 501(c)(3) determination letter from the IRS at some point prior to 2000. Upon IRS examination, a number of record-keeping and programmatic deficiencies were found. Among the more prominent problems were: (a) Org's failed to account for 26 of the claimed 35 conservation easements it held. (b) The President (and founder) of Org served as a paid consultant to donors and donors' appraisers, and the President paid the appraisers for their work. (c) Org accepted a cash payment for the amendment of a conservation easement that allowed the number of houses to increase from one to two.

Moreover, the President was paid a consulting fee by the Org for administering the amendment transaction. (d) Org failed to produce its Articles of Incorporation, bylaws, or Form 1023 application. (e) Org had no designated easement enforcement fund and no apparent program for enforcing conservation easements other than sending copies to the local planning office. In addition, the President claimed to be the sole monitor for all of the easements, and no monitoring records were kept. (f) Org shared the same contact information as a limited liability company of which the President was the sole member. (h) Org had no conservation easement application process, written acceptance standards, and decisions to accept easements were left to the sole discretion of the President. (i) Although Org claimed that it conducted a baseline documentation for each easement, it could not produce any such records. (j) Org made campaign contributions to political candidates on several occasions.

Holding: The IRS revoked Org's 501(c)(3) status.

Analysis and Notes: Like PLR 2011090030 and PLR 201048045, below, the myriad compliance issues presented here suggest that the IRS had ample grounds for revoking 501(c)(3) status. However, the PLR raises certain issues for legitimate land trusts to consider, including how to account for easement donations on their Form 990's. Citing widespread land trust practices, Org claimed that it was not required to file Form 990's in certain years because the gross receipts value of donated easements was properly reflected at zero.

The IRS, in contrast, contended that the Form 990 gross receipts value must match the claimed deduction value on the Form 8283. Another noteworthy conclusion was that the easement amendment constituted private benefit in favor of the landowner. Land conservation attorneys have often warned of the potential for private benefit in an easement amendment context, and this PLR confirms those apprehensions.