TAX-DEDUCTIBLE CONSERVATION EASEMENTS AND THE ESSENTIAL PERPETUITY REQUIREMENTS

Property owners who make charitable gifts of perpetual conservation easements are eligible to claim federal charitable income tax deductions. Through this tax-incentive program the public is investing billions of dollars in easements encumbering millions of acres nationwide. In response to reports of abuse in the early 2000s, the Internal Revenue Service (Service) began auditing and litigating questionable easement donation transactions, and the resulting case law reveals significant failures to comply with the deduction's requirements. Recently, the Service has come under fire for enforcing the deduction's 'perpetuity' requirements, which are intended to ensure that the easements will protect the subject properties's conservation values in perpetuity and that the public's investment in the easements will not be lost. Critics claim that the agency is improperly discouraging easement donations by denying deductions for technical foot faults, and some have called for a change to the law that would allow taxpayers to cure their failures to comply with the perpetuity requirements if they are discovered on audit. This article illustrates that noncompliance with the perpetuity requirements should not be viewed as technical foot faults. To the contrary, compliance is essential to the integrity of the tax-incentive program and the easements subsidized through the program. In addition, allowing taxpayers to cure failures to comply with the perpetuity requirements if they are discovered on audit would significantly increase noncompliance and abuse and, given the reliance nationwide on deductible easements to accomplish conservation goals, risk fatally undermining an entire generation of conservation efforts. This article recommends a more prudent approach: the Treasury's issuance of guidance that would greatly facilitate compliance with the perpetuity requirements, reduce transaction costs for taxpayers, and significantly shore up the integrity of the program.

I. NTRODUCTION 3 A. Perpetuity Requirements 9 1. Recordation 10 a. Requirement 10 b. Case Law 10 c. Importance 12 2. Baseline Documentation 12 a. Requirement 12 b. Case Law [...]