After years of crackdown efforts by the Internal Revenue Service, Congress is coming closer to removing incentives that allow enormous tax deductions for conservation easements. Richard Rubin writes in the Wall Street Journal:
“A bipartisan group of lawmakers said it hopes to complete legislation to curb tax breaks for land-rights deals this year, but as the bill advanced Wednesday [June 22, 2022] lawmakers relinquished a crucial element—a provision that would deny deductions back to December 2016.
“The bill, which has been kicking around Congress for several years, would limit deals known as syndicated conservation easements by denying deductions that are more than 2.5 times what investors put in. It has fallen short repeatedly amid heavy behind-the-scenes lobbying from deal promoters, and backers are now looking for a path forward.
Conservation easements are legitimate techniques for conservation—and, in fact, the Land Trust Alliance, a major beneficiary of conservation easements, is supporting the bill. However, conservation easement “syndicates” bring investors in to benefit from tax deductions well beyond the value of the land being conserved.
Wrote Rubin in May 2022:
“In those [syndicate] deals, promoters create partnerships to acquire land, recruit investors and then make an easement donation. They effectively spread deductions from a landowner who might not have much taxable income to investors who do.
“Often, after a series of transactions, the donations are more than four times the investment. That means someone who spent $10,000 could get a $40,000 tax deduction, which would save more than $10,000 in federal taxes, with potential state income-tax breaks on top of that.”
Peter Elkind of ProPublica says that a popular syndication technique is to turn “the likes of abandoned golf courses or remote scrubland into high-return investment vehicles.” How?
“These promoters snatch up vacant land that till then was worth little. Then they hire an appraiser willing to declare that it has huge, previously unrecognized development value—perhaps for luxury vacation homes or a solar farm—and thus is really worth many times its purchase price. The promoters sell stakes in the donation to individuals, who claim charitable deductions that are four or five times their investment. The promoters reap millions in fees.”
Elkind identifies two lobbyist groups that are fighting the restrictions, so far successfully: Partnership for Conservation (P4C) and Waxman Strategies, a lobbying group headed by former Democratic congressman Henry Waxman.
In 2016, the IRS red-flagged the syndicated easements, but they continue to be used. It appears now that the bill, if passed, will not ban syndicated easements between 2016 and the effective date of the law. If so, the IRS has a much more difficult task in proving those syndicates to be illegal.
While opposition to syndicated conservation easements is strong, most conservation easements remain popular. However, there are also fundamental critiques of conservation easements, because they restrict land use in perpetuity. For discussion, see “Did You Know a Debate Is Brewing over Conservation Easements?”