{"id":3065,"date":"2021-09-15T19:38:41","date_gmt":"2021-09-15T23:38:41","guid":{"rendered":"https:\/\/journals.law.harvard.edu\/elr\/?p=3065"},"modified":"2023-07-25T15:57:16","modified_gmt":"2023-07-25T19:57:16","slug":"building-better-conservation-easements-for-america-the-beautiful","status":"publish","type":"post","link":"https:\/\/journals.law.harvard.edu\/elr\/2021\/09\/15\/building-better-conservation-easements-for-america-the-beautiful\/","title":{"rendered":"Building Better Conservation Easements for America the Beautiful"},"content":{"rendered":"

By: King Burnett,[1]<\/a> John D. Leshy,[2]<\/a> & Nancy A. McLaughlin[3]<\/a><\/em><\/p>\n

Article (PDF):\u00a0<\/b>https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3925094<\/a><\/p>\n

Introduction<\/h3>\n

In January 2021, the Biden Administration endorsed the goal of protecting 30 percent of the nation\u2019s lands and waters by 2030 to conserve biodiversity and help curb greenhouse gas emissions.[4]<\/a> The Administration\u2019s initial report on this \u201cAmerica the Beautiful\u201d initiative, issued in May, indicates that federally-deductible conservation easements are likely to play an important role in its implementation.[5]<\/a> This essay addresses whether and how such easements should be counted in this process.<\/p>\n

This matter is of great importance. Donations of conservation easements, by which landowners receive generous federal tax deductions if they restrict the use of their properties in perpetuity in the interest of conservation, cost American taxpayers billions of dollars annually in foregone revenue. In addition, growing reports of abuse and other developments raise serious questions about the effectiveness of deductible easements in achieving durable conservation outcomes.<\/p>\n

This essay outlines the fundamental problems plaguing the deductible conservation easement program. It compares practices regarding deductible conservation easements with the protocols employed in various government conservation easement purchase programs. It concludes with specific suggestions for making deductible easements an effective tool for achieving the America the Beautiful goal. Simply accelerating the pace of conservation easement donations is not enough\u2014\u201cto achiev[e] durable outcomes that meaningfully improve the lives of Americans,\u201d [6]<\/a> better conservation easements need to be built.<\/p>\n

I. The Deductible Conservation Easement Program: Scope and Problems<\/h3>\n

Federal law gives landowners generous tax deductions if they donate easements restricting the use of their properties in perpetuity in the interest of conservation to government entities or nonprofit organizations.[7]<\/a> Billions of dollars of federal tax revenue are foregone each year as a result of these deductions. According to a former Treasury Department official, deductible conservation easements \u201crank among the largest federal environmental and land management programs in the [entire U.S.] budget,\u201d with the amount of revenue foregone each year approaching the annual budget of the National Park Service.[8]<\/a> A Bipartisan Investigative Report that the Senate Finance Committee released in August 2020 examined just one category of deductible conservation easements and estimated they may have cost taxpayers more than ten billion dollars in foregone revenue over an eight-year period.[9]<\/a> In effect, the American taxpayer is purchasing land conservation with these foregone revenues. How much value the taxpayer is receiving in return is an important question. The answer is even more important when lands subject to deductible conservation easements are counted toward the America the Beautiful goal.<\/a><\/p>\n

A related development is the spotlight that has been trained on the structure and enforcement of the nation\u2019s tax laws. This interest is driven by, among other things, the search for more revenue to stem budget deficits and growing concern about the unprecedented level of wealth and income inequality in our society, coupled with reports that the nation\u2019s wealthy pay fewer taxes than the average person.[10]<\/a> An additional concern, highlighted in a recent report on land conservation incentives in the state of Virginia, is that\u2014in the words of the State\u2019s Secretary of Natural Resources\u2014\u201ccontinuing to give huge tax breaks to a largely White landowning class .\u00a0.\u00a0. is not a 21st-century land conservation policy, and it\u2019s certainly not equitable.\u201d[11]<\/a><\/p>\n

Growth in the popularity of federally-deductible conservation easements has also been accompanied by a rising concern about abuses of the relevant tax code provisions. In 2003 and 2004, the Washington Post<\/em> published a series of articles describing abuses and questionable benefits of deductible conservation easements.[12]<\/a> Thereafter, the Land Trust Alliance, the trade association of land trusts, took steps to address some of the problems.[13]<\/a> In 2006, Congress modestly tightened requirements for one narrow category of deductible easements (fa\u00e7ade easements) and modified appraisal and penalty provisions to try to deal with problems of overvaluation, but at the same time also made the deduction more generous, especially for farmers and ranchers.[14]<\/a> None of these measures were particularly effective in curbing abuses,[15]<\/a> and so the Obama Administration included suggestions for reform in each of its Revenue Proposals for fiscal years 2013 through 2017, but no reforms have yet been enacted.[16]<\/sup><\/a><\/p>\n

In recent years, an additional form of abuse has proliferated and gained notoriety\u2014so-called \u201csyndicated donation transactions.\u201d In these schemes, promoters promise wealthy investors large tax deductions when they purchase interests in entities owning tracts of land. The entities donate greatly over-valued conservation easements to nonprofit land trusts and the inflated tax deductions are then distributed to the investors. The Senate Finance Committee has condemned these tax-shelter transactions, characterizing them as vending machines that give an investor two dollar bills back for every dollar bill inserted.[17]<\/a> The Internal Revenue Service (\u201cIRS\u201d) has been using some of its scarce enforcement resources to try to curb this practice.[18]<\/a> Legislation has been introduced in Congress to do the same,[19]<\/a> supported by the Land Trust Alliance.[20]<\/a><\/p>\n

While the IRS initiative and the proposed legislation are welcome, they are aimed at the practice of syndication, and the contemplated reforms would have little effect on the problem of overvaluation outside of the syndication context.[21]<\/a> Even more important, the focus on syndications ignores other fundamental problems plaguing the deductible conservation easement program, including the following:<\/p>\n