Senators investigate abuses of conservation easement tax break
Leaders of the Senate Finance Committee launched a probe Wednesday into potential abuse of the conservation easement tax break to siphon billions of dollars away from the federal government.
Senate Finance Committee chairman Chuck Grassley, R-Iowa, and Sen. Ron Wyden, D-Ore., the ranking Democrat on the committee, announced the launch of the investigation, acknowledging that the Internal Revenue Service has been investigating such transactions for several years.
Congress has allowed an income tax deduction for property owners who agree to give up certain ownership rights to preserve their land or buildings for future generations.
But the IRS has seen abuses of the tax provision and the Pension Protection Act of 2006 Congress enacted several provisions to encourage conservation contributions while limiting abuses. The tax scams often involve promoters selling interests in tracts of land to taxpayers looking for large tax deductions. In such arrangements, the taxpayers in turn receive inflated appraisals of those tracts of land and grant conservation easements on that land. The resulting inflated charitable deductions are then split among the taxpayers.
“There are very legitimate purposes for the conservation easement provisions of the tax code,” Grassley said in a statement. “But when a handful of individuals cook up a scheme to cash in at the expense of federal revenue and in violation of Congress’s intent, something needs to change. There’s no reason that the rest of the taxpaying American public should be left with such a raw deal. This is just our first step in getting to the bottom of how these tax provisions are being abused, and it will inform what else ought to be done to fix the problem.”
Some groups of investors appear to have used syndicated conservation easements to get tax benefits larger than their initial investments. The investors groups will pool their resources to purchase land and grant conservation easements on it to prevent development. With very little oversight, many of them receive extravagantly high appraisals for that land, boosting their tax benefits. Research from the Brookings Institution found these abuses cost the federal government more than $3 billion in 2014, and estimated it has cost even more in the years since.
Grassley and Wyden sent 14 separate letters to individuals who appear to be associated with these investor groups that might have unfairly profited from conservation easements seeking documents and other information about the organization, tax code compliance and promotion of the groups from these individuals.
“Our first concern is preserving the integrity of the conservation easement program, which has helped protect critical habitat across the country,” Wyden stated. “The goal of our bipartisan investigation is to ensure a few bad actors don’t threaten the program by selling off deductions based on exorbitant appraisals. The program must not be abused and used as a lucrative tax shelter for the wealthy.”
A group of proponents for conservation easements is reacting to the investigation. “Partnership for Conservation and its members are encouraged to see chairman Grassley and ranking member Wyden acting in a bipartisan fashion to collect the facts about conservation easement donations made by partnerships,” said Partnership for Conservation executive director Robert Ramsay in a statement Wednesday. “We look forward to being part of the discussion as we work to promote increased land conservation through clearer guidance that ensures conservation partnerships comply with both the spirit and the letter of the law Congress has passed on multiple occasions. We welcome this fact-finding process, and we look forward to working with all stakeholders to find solutions that will continue to encourage and incentivize private conservation of land for generations to come.”
Another advocacy group, the Land Trust Alliance, a national land conservation organization, also said it welcomed the Senate investigation of conservation tax benefit abuse. "The Land Trust Alliance and our 1,000 member land trusts welcome the U.S. Senate Finance Committee’s thoughtful and timely probe of conservation tax benefit abuse," said Land Trust Alliance president and CEO Andrew Bowman in a statement. "This investigation led by Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.) is the right step toward permanently ending this abuse. It shines a bright light on transactions that disguise a profitable tax shelter as a charitable donation. Also, we are especially grateful for the committee’s appreciation of the very legitimate purposes conservation easements continue to serve. Only a handful of the more than 2,000 conservation easements completed annually are the work of bad actors abusing the system. But these actors must be stopped. This is why the Alliance has endorsed the Charitable Conservation Easement Program Integrity Act. It allows honest conservation donations to move ahead, unimpeded. It preserves the good reputation of our nation’s land appraisers and conservationists. It stops bad actors from profiting. It safeguards taxpayers. And it provides Congress a concise and sensible solution that’s ready for passage."