Land is a valuable, appreciating asset, and often represents a sizable percentage of a landowner’s total personal wealth. That’s why landowners are sometimes conflicted by their desire to conserve beloved property for the future and their need to tap the land’s financial worth today.
Landowners with relatively low income-tax obligations may not be in a financial position to make the decision to conserve their land. In these cases, the landowners may feel their only option to raise needed cash is to sell their land to a developer.
However, there is another viable alternative. Landowners can team up with several family members, friends, or a group of unrelated individuals to form a conservation partnership.
Donations from conservation partnerships allow environmentally valuable land to be conserved permanently. Approximately 20 million acres of land, roughly the size of the state of South Carolina, have been conserved since the current tax incentive was created in 2006. With more lands being conserved than ever before, why would we turn back the clock on a system that has been working as intended for almost 40 years?
Learn more about conservation partnerships below – and see examples of conservation partnerships in our Conserved Lands portfolio.
How do private sources of funding like private equity funds or conservation partnerships help land trusts fulfill their conservation mission? How do they benefit the public?
Conservation partnerships are a crucial tool in the effort to protect our nation’s most important land resources. But conservation is expensive, and in an era where government cannot fund the cost of conservation alone, significant new sources of private funding are required to preserve land and protect our resources for future generations. Whether the land being conserved is owned by an individual, a family partnership or an investment partnership that purchases and owns land — all play an important role in financing needed conservation projects. Conservation partnerships have led to a democratization of land protection efforts that benefits the environment every day and will be critical to ensuring the private sector can take on more responsibility in maintaining a healthy balance between economic growth and our environment.
Conservation easement donations by conservation partnerships represent a win-win-win scenario because they: (A) Allow environmentally valuable land to be conserved, (B) provide needed sources of funding to land trusts outside of just wealthy individual landowners and (C) cost the federal government no more than if the donation came from an independently wealthy individual.
Why are the IRS and other organizations representing land trusts concerned about some conservation easement donations by conservation partnerships?
They are concerned about tax deductions for conservation easement donations that may be based on an overvalued appraisal of the donation. Fortunately, when you consider any publicly available statistics, abuses of valuation with conservation easement donations are rare and are no more likely to come from a wealthy landowner, a family partnership or a partnership of unrelated individuals.
P4C agrees that common sense improvements to the conservation easement legislation can and should be made, and that’s why our best include detailed recommendations to help landowners identify qualified appraisers, substantiate the highest and best use for their property and confirm the appraised value. It’s also why we developed legislative proposals. It’s also important to remember that the current tax incentive was approved by both the Bush and Obama Administrations, and it opened the conservation movement to more Americans.
What does P4C think are the warning signs of an overvalued conservation easement donation?
The warning signs are in the appraisal. To ensure proper valuation, appraisals should be up-to-date and accurately substantiate the highest and best use of the property — an industry-accepted standard that is used by appraisers, regardless of whether the client is an individual or a conservation partnership. Appraisals of conservation easements must be performed by a qualified appraiser who is authorized to appraise properties in the area, and the appraiser must attest to the fact that she or he has no conflict of interest. P4C also recommends that conservation easement appraisals are reviewed by at least one qualified third party for validation. Taxpayers and appraisers who overvalue conservation easements face significant tax penalties, and any unscrupulous appraiser risks losing their livelihood through revocation of their license. This is why P4C has put forth a number of best practices to ensure warning signs are identified and addressed.
So, what do you propose we do?
P4C is advocating for a legislative solution that accomplishes three goals:
By legislating sensible solutions, Congress will ensure that conservation easements continue to be used to protect valuable land and environmental resources, while eliminating the rare instances of abuse that exist.