In the Winter 2001-02 edition of this newsletter, an article listed reasons landowners choose to place a conservation easement on their lands. One of those listed reasons was the potential for favorable tax treatment. However, the IRS recently announced that it intends to toughen the scrutiny pertaining to land gifts. Specifically, they are targeting gifts of conservation easements or deed restrictions.
A statement released by the IRS said that it "intends to disallow" and may assess penalties for improper tax deductions claimed for gifts of easements to charities. Easements that serve no conservation purpose and create no significant public benefit do not qualify for tax deductions.
In the IRS published notice concerning this issue (Notice 2004-41), it states that one "of the permitted conservation purposes is the preservation of open space ('open space easement'), including farmland and forest land, for the scenic enjoyment of the general public or pursuant to a clearly delineated governmental conservation policy. However, if the public benefit of an open space easement is not significant, the charitable contribution deduction will be disallowed."
The impetus for this increased scrutiny is not clarified; however, it does come at a time when the IRS is conducting a major audit of the Nature Conservancy, the world's largest environmental organization.
How does this notice affect you? Well, it may not, but it does reinforce the main theme of the previously published NEFCo article - do your homework. It is up to you, the landowner, to insure the favorable tax treatment you are going to claim due to a conservation easement is legitimate and legal, and that the easement meets all of the IRS requirements. Simply taking the word of the organization who is holding the easement would not be prudent, and you should seek counsel from an experience tax attorney.