A new analysis from the Brookings Institution's Tax Policy Center finds that abuse of a tax deduction meant to encourage conservation of important land and historic buildings is on the rise, and it's costing the federal government billions in lost revenue. For a national database of conservation easements, click here.
Conservation easement deductions tripled between 2012 and 2014, rising from $971 million in 2012 to $1.1 billion in 2013 to $3.2 billion in 2014, Brookings Senior Fellow Adam Looney found in the analysis.
"Created 40 years ago, the provision allows property owners to take a charitable deduction for donating qualified conservation easements—legal agreements that permanently limit the development or use of a property—to a charitable organization," he explains. "But some donors are abusing the provision by applying grossly inflated appraisals to the value of the easement to increase their charitable deduction or by taking donations for easements that do not fulfill bona fide conservation purposes. Some real estate developers exploit these vulnerabilities by selling the rights to claim charitable deductions to investors and using the proceeds to finance development, which costs taxpayers hundreds of millions of dollars per year and undermines the program’s conservation goals."
One problem, Looney writes, is that donations are concentrated in transactions unrelated to conservation benefits. "The dollar value of donations of conservation easements is highly concentrated in certain types of transactions, in certain geographic areas, and in a handful of donee organizations," he reports. Another problem is that just a few organizations are responsible for a disproportionate share of donations.
Between 2010 and 2012, just 25 organizations (out of about 1,700 land trusts nationwide) received about half of all donations of easements, when measured in dollar value, Looney notes.
Additionally, "most organizations that receive donations of easements do not report them as gifts or revenues on their public tax returns," he writes. "The tax returns of charitable and tax exempt organizations are public to provide information about the activities of the charitable sector, to provide transparency and accountability, and to help reduce any abuse of tax-exempt status." However, transparency only works if organizations report charitable gifts on their public tax returns.
Read Looney's full report here.
"Created 40 years ago, the provision allows property owners to take a charitable deduction for donating qualified conservation easements—legal agreements that permanently limit the development or use of a property—to a charitable organization," he explains. "But some donors are abusing the provision by applying grossly inflated appraisals to the value of the easement to increase their charitable deduction or by taking donations for easements that do not fulfill bona fide conservation purposes. Some real estate developers exploit these vulnerabilities by selling the rights to claim charitable deductions to investors and using the proceeds to finance development, which costs taxpayers hundreds of millions of dollars per year and undermines the program’s conservation goals."
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| Looney cites a subdivision southwest of Watkinsville, Ga., south of Athens, with the conservation easement in blue: "Because the property is in a suburban area and because the homes are likely to be valuable, the valuation of the development rights could be high." |
Additionally, "most organizations that receive donations of easements do not report them as gifts or revenues on their public tax returns," he writes. "The tax returns of charitable and tax exempt organizations are public to provide information about the activities of the charitable sector, to provide transparency and accountability, and to help reduce any abuse of tax-exempt status." However, transparency only works if organizations report charitable gifts on their public tax returns.
Read Looney's full report here.
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