Putting an End to Abusive Conservation Easement Tax Shelters

The Charitable Conservation Easement Program Integrity Act was first introduced in the U.S. House of Representatives on Nov. 28, 2017, and the U.S. Senate on Feb. 15, 2018. Since then, it has been reintroduced in every session of Congress.

On December 23, 2022, Congress passed the Charitable Conservation Easement Program Integrity Act that will end the abuse, preserve the integrity of our tax laws, and protect those who work tirelessly and ethically to conserve our country’s irreplaceable working and natural lands.

The Land Trust Alliance, on behalf of its approximately 950 member land trusts, applauds passage of the Charitable Conservation Easement Program Integrity Act and recognizes the work of a bipartisan group of congressional leaders, including Sens. Steve Daines, Chuck Grassley, Debbie Stabenow and Ron Wyden, and Reps. Mike Thompson and Mike Kelly, for ensuring its inclusion in the 2022 omnibus appropriations bill. And we applaud our land trust community that held steadfast in their commitment to stopping the abuse and worked with this group of congressional leaders to get the Integrity Act across the finish line.

• What’s the issue?

  Not all donations of conservation easements are created equal. While the vast majority are truly charitable endeavors, a few bad actors are promoting conservation easement donations as a way for investors to make a fast profit by gaining access to large federal tax deductions. The IRS has identified these abusive transactions as egregious tax shelters. We need to halt this abuse.

• Is the abuse a big problem?

  Yes. Although only a handful of bad actors are engaged in this abuse, IRS data released in 2018 shows that the average return ratio for the top 10 percent of these abusive transactions enabled investors to claim an average deduction valued at more than nine times the amount of their original investment. And the bloated nature of these transactions is costing taxpayers billions of dollars. According to the most current data available, these bad actors claimed nearly $36 billion in unwarranted tax deductions from 2010 to 2018. In 2016 alone, they claimed $6 billion in deductions from just 249 transactions. Claimed deductions by these bad actors jumped to $6.8 billion in 2017 and a stunning $9.2 billion in 2018.

  Read additional background

• What is the Alliance’s position on transactions involving tax shelter use of conservation easement or land donation tax deductions?

  The Alliance strongly opposes these abusive tax schemes and has educated its members about the serious legal issues associated with misallocations and overvaluation. By watching for warning signs, land trusts can better evaluate when to walk away from such transactions.

• What are the warning signs?

  The Alliance Tax Shelter Advisory spells out the warning signs. 

  Read the Advisory

• Has anyone tried to shut down these tax shelters?

  Yes. Congress, the IRS and the U.S. Department of Justice have all sought to halt the abuse. In addition, the Alliance has taken considerable steps to ensure our members understand why the abuse is bad, how to identify it and pledge to not engage in such transactions. But despite these and other efforts, the problem persists.

• What is Congress doing?

  Congress introduced the Charitable Conservation Easement Program Integrity Act, a simple, smart and effective approach to address this problem. The bill aims to reward honest philanthropy while shutting down those who would abuse this charitable incentive for profit. To best target the scheme used for tax shelters and to ensure that legitimate conservation transactions are not impacted, the bill focuses on transactions that generate profits over a short period of time (three years or less) and also includes an exception for family partnerships.

  In March 2019, the U.S. Senate Finance Committee led by Senator Chuck Grassley (R-Iowa) and Ron Wyden (D-Oregon) launched an investigation into 14 individuals associated with these abusive transactions. As part of the investigation, the Committee issued six subpoenas demanding recipients provide information about these transactions. That investigation yielded in August 2020 a thorough and revealing report detailing abuse of the federal conservation tax incentive, likening it to walking up to a vending machine, putting in a dollar and getting two dollars back. It also noted how “these types of abusive tax shelters erode the Nation’s tax base and sow pessimism among all Americans about the fairness of our tax laws” before concluding that “Congress, the IRS and Department of the Treasury should take further action to preserve the integrity of the conservation-easement tax deduction.”

  Read a copy of the Committee’s report

• What is the IRS doing?

  In December 2016, the IRS categorized these donations as “listed transactions.” This means promoters of and participants in these transactions must report their activities to the IRS or face fines.  Since categorizing these donations, the IRS has worked aggressively to seek justice and protect taxpayers. During the last several years, the IRS has continued to provide the U.S. Senate Finance Committee with data illustrating the continuing cost of abuse. Additionally, in November 2019, the agency announced increased enforcement actions. In June 2020, the agency issued a settlement offer to certain taxpayers involved in syndicated conservation easement transactions. Shortly thereafter, during a June 2020 Senate Finance Committee hearing, IRS Commissioner Charles Rettig confirmed the agency’s commitment to halting the abuse and spoke about the need for legislation. More recently, in June 2022, syndicated conservation easements appeared on the IRS’ annual “Dirty Dozen” scams list. 

• What is the U.S. Department of Justice doing? 

  Like Congress and the IRS, the U.S. Department of Justice is taking forceful action to crack down on abuse. In December 2018, the Justice Department filed a civil suit against six individuals associated with these abusive transactions.

  Learn more about this development.

  Moreover, in December 2020, the Justice Department announced the first criminal case in which two people pleaded guilty to conspiring with others to develop, market, promote and sell investments in fraudulent syndicated conservation easement transactions.

  Find more information about this development

  Then, on March 1, 2022, a federal grand jury returned an indictment charging seven individuals with conspiracy to defraud the United States and other crimes arising out of their promotion of fraudulent tax shelters involving syndicated conservation easements.

  More information

• How do we know Alliance members aren’t engaged in the abuse?

  The Land Trust Alliance has worked hard to ensure our members are not engaged in these abusive transactions. All Alliance member land trusts must sign a resolution stating they will adhere to our Standards and Practices that explicitly states they will not engage in these abusive transactions.  In addition, we have worked hard to educate our members and issued a tax shelter advisory as well as multiple articles in our quarterly magazine on ways our members can — and must — avoid these transactions.

• Why does the problem persist?

  Simply put, there are millions of dollars to be made from a single transaction. The promoters are highly motivated to keep the game going.

• Is the media reporting on this problem?

  Yes. Some of the most prominent examples include an investigation jointly published by ProPublica and Fortune magazine and a report by The Wall Street Journal (subscription required). Additionally, local news media such as NPR-affiliated KUAF in Arkansas and The Atlanta Journal Constitution are increasingly focusing on this issue.

  Publications specializing in tax and legal matters, including Bloomberg, also have reported on this issue. 

• Would the legislative solution impact all partnerships?

  Absolutely not. As noted above, family partnerships that are charitably-minded have nothing to fear. The bill isn't looking to stop deals involving land that’s been family-owned for generations and seen a fair rise in value. Rather, the bill addresses deals that are promoted as a way to generate a profit in a short time. Deals where land values rise suspiciously almost overnight are what will be thwarted — not partnerships.

• If the Congress doesn’t act, what would happen?

  As these transactions continue, they pose a profound threat to the land trust community. Without action, billions of dollars will continue to flow out of the federal coffers and the IRS will be forced to spend years in court resolving the issue. This would delay and, ultimately, imperil efforts to recapture the lost taxpayer revenue. And even worse, it’s easy to imagine a scenario in which Congress could reduce or even erase federal tax incentives for conservation easement donations. We cannot let that happen. The Charitable Conservation Easement Program Integrity Act might be our last opportunity to stop this from happening.

• Yikes! What can I do?

  We need your help now to encourage Congress to pass the Charitable Conservation Easement Program Integrity Act.

  Learn how you can help

• I’m a member of the media and I need to know more about this issue. Whom can I contact? 

  For more information or to schedule an interview with an Alliance expert on this issue, please contact Media Relations Manager Corey Himrod at chimrod@lta.org or 202-638-4724.