Attorney for LTA Recommends Reforms to Stop Abusive Conservation Easement Donations

Attorney for LTA Recommends Reforms to Stop Abusive Conservation Easement Donations

News story posted in Conservation Easement on 1 August 2005| comments
audience: National Publication | last updated: 18 May 2011
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Summary

Roderick DeArment of Covington & Burling writing on behalf of the Land Trust Alliance has suggested that Congress could stop abuses in the donation of conservation easements by imposing strict rules that establish minimum qualifications for appraisers and appraisals and strict new penalties for inflated appraisals.

Full Text:


From:
DeArment, Roderick [RDeArment@cov.com]

Sent: Friday, July 22, 2005 12:49 PM

To: Susan.Brown@do.treas.gov

Cc: rshay@lta.org

Subject: LTA Proposed Conservation Reforms

Susan,

Thanks for your call today. As promised attached are the LTA's reform proposals.

This message is from a law firm and may contain information that is confidential or legally privileged. If you are not the intended recipient, please immediately advise the sender by reply e-mail that this message has been inadvertently transmitted to you and delete this e-mail from your system. Thank you for your cooperation.

Roderick A. DeArment
Covington & Burling
1201 Pennsylvania Ave., NW
Washington, DC 20004
202-662-5900

Possible Tax Reforms to Conservation Easements

This document outlines legislative changes that would stop abuses in the donation of conservation easements but which would allow legitimate conservation donations to continue.

I. Impose strict rules that establish minimum qualifications for appraisers and appraisals.

1. Require the appraiser to be a "state certified real estate appraiser", as defined in sec. 1116 of FIRREA (12 U.S.C. 3345). (Stricter than JCT proposal, explicitly provides state licensing and a state enforcement role.)

2. Require the appraiser to certify that he or she has not been subject to disbarment from practice before the IRS by the Secretary of the Treasury pursuant to 31 U.S.C. sec. 330(c). (JCT proposal.)

3. Require that appraisals meet the Uniform Standards of Professional Appraisal Practice (USPAP) as required for federally-related real estate appraisals by Title XI of the Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA). (Stricter than the "generally accepted appraisal standards" set forth in the JCT proposal.)

4. Grant Treasury regulatory authority to provide additional guidance on appraisal and appraiser requirements. (Not in the JCT proposal.)

5. Require that the appraiser certify in the appraisal that (1) the specific restrictions and obligations imposed by the easement and (2) the effect of existing zoning and other local ordinances, including local historic preservation ordinances, if any, have been expressly disclosed and taken into account in the valuation. (Not in the JCT proposal.)

II. Impose stricter and new penalties for inflated appraisals.

1. Cut the thresholds for valuation misstatement penalties for charitable easement donations. Under code section 6662(e)(1)(B)(i) a substantial valuation misstatement penalty applies if the deduction claimed is 100% greater than the amount determined to be correct. Under code section 6662(h) a gross valuation misstatement penalty applies if the value claimed is more than 300% greater than the amount determined to be correct. Under this proposal, the substantial valuation misstatement penalty would apply if the charitable deduction claimed is more than 50% greater than the correct amount and the gross valuation misstatement penalty would apply if the charitable deduction claimed is more than 100% greater than the correct amount.

2. Require the IRS to report all appraisals where a gross or substantial valuation misstatement is determined to the appraiser's state certification board.

3. Provide the Secretary of the Treasury with the authority, after notice and a hearing, to bar an appraiser from practice before the Department of the Treasury under 31 U.S.C. sec. 330(c) when the appraiser has issued three or more appraisals determined to be subject to substantial or gross valuation misstatements.

4. Increase the penalty for aiding and abetting understatement of tax liability under IRC 6701(b) from $1,000 to $10,000.

III. Prohibit deductions for donations that do not protect a clear public value. The statute should prohibit federal tax deductions for the donation of conservation easements on golf courses and small lots except in extremely limited circumstances.

1. Prohibit deductions for the donation of a conservation restriction on a golf course or similar properties.

2. Prohibit deductions for the donation of a conservation restriction that is less than 10 acres unless it is (in addition to all existing relevant requirements):


a) For purposes of historic preservation;

b) For the provision of public recreational access;

c) Directly benefiting the purposes of an adjacent area already protected for a qualified conservation purpose;

d) Part of a feasible strategic plan by the donee for the protection of a contiguous area greater than 10 acres; or,

e) Accompanied by a letter from a unit of federal, state or local government stating that the easement directly supports an adopted policy designed to accomplish one or more qualified conservation purposes.


IV. Make the deductions available for donating a conservation easement fairer for working farmers and ranchers (as proposed in the Charitable Giving Act of 2004).

1. Allow working farmers and ranchers to deduct a higher percentage of their adjusted gross income over a longer period of years, so that deductions from these donors are not unduly restricted by their modest incomes.

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