Policy Update
The Tax Code and Land Conservation
6/08/2005
Source: National Council of Nonprofit Associations
The June 8 Senate Finance Committee hearing focused on land conservation easements. Testimony and discussion addressed abuses of current law and strategies for ensuring that the law be used as it was intended. Written testimony can be found on the web site of the Senate Finance Committee. Highlights of witness statements are below.
Chairman Grassley (R-IA) opened the hearing by drawing attention to questionable practices by nonprofits and government entities. He specifically mentioned the Nature Conservancy, Department of Interior, Department of Transportation, and Securities and Exchange Commission.
In his closing remarks, Grassley stated his hope to propose reforms on conservation easements in the next few weeks, including possible reforms in the areas of valuation; monitoring and enforcement of easements; ensuring conservation purposes of easements; and accreditation, greater transparency, and increased reporting for land trusts.
Senate Finance Committee staff members Jonathan Selib (Democratic staff) and Dean Zerbe (Republican staff) testified and answered specific questions from the Committee.
Zerbe recommended modifying the IRS Form 990, establishing an accreditation system for organizations that accept conservation easements, and, in some cases, eliminating deductions for small easements or requiring pre-approval of tax deductions.
In answer to a question from Senator Thomas (R-WY) about whether new legislation is necessary or if enforcement can solve the current problems, Zerbe recommended new legislation and Selib remarked that some changes to the law may make easements easier to enforce.
Senator Bunning (R-KY) asked about the possibility of applying unrelated business income tax (UBIT) to land donations and easements; Zerbe asserted that UBIT is very complex.
Senator Schumer (D-NY) questioned the impact of new laws on charitable giving. Selib responded that the proposals, as written in the Joint Committee on Taxation Report, could lead to a significant reduction in donations.
Expert witnesses summarized their experiences with abuses and provided recommendations. The abuses included inflated valuation of property; questionable interpretation of easement purpose and criteria, such as easement tax deductions taken by golf course developers; and insider transactions regarding the sale of easement and donated property.
Violation of the law due to lack of knowledge was also mentioned. Recommendations included creating new appraisal standards, establishing more specific criteria for easements intermediate sanctions, increased transparency, expansion of the IRS Form 990 or IRS Form 8283 (nonprofits are required to fill out Form 8283 after receiving certain non-cash donations), and education of donors and land trusts.
Two witnesses represented nonprofit organizations, Mr. Steven J. McCormick, President and CEO of the Nature Conservancy (TNC) and Mr. Rand Wentworh, President of Land Trust Alliance. McCormick stated that, in the last two years, TNC had learned that it must move beyond compliance with the law and devotion to its mission to ensure a high standard of governance and transparency.
He also stated that promoting risk-taking and bottom-up innovation must be matched with improved policies and procedures. Wentworth stated that the Land Trust Alliance is poised to provide education and accreditation that is more comprehensive than the IRS or other government entity could provide.
Several Senators articulated their support of conservation, with some qualifications. Senator Baucus (D-MT) stated his commitment to protecting open space and raised concern over TNC’s former practice of selling easements to insiders.
Senator Rockefeller (D-WV) stated that foundations and the private sector (including nonprofit organizations) must be encouraged to step in to conservation work as government funding for conservation decreases. Senator Santorum (R-PA) argued for facilitating, not harming, the work of small land trusts and ensuring their survival over time.
Senator Schumer (D-NY) praised the work of The Nature Conservancy in protecting land in NY and around the world. While Schumer expressed support for some type of reform, he warned against creating disincentives for donations and easements.
Senator Lincoln (D-AR) highlighted the importance of conservation, especially in light of the recent discovery of the ivory-billed woodpecker once thought extinct. Senator Snowe (R-ME) hailed the economic and environmental benefits of easements, while arguing that transactions should be more transparent.