2020 a Make-or-Break Year for Market-Based Conservation Solutions

By Robert Ramsay February 24, 2020

At the start of a new decade, America faces the competing challenges of unprecedented concern for our environment bumping up against growing development pressure that threatens critical landscapes, vital habitats and lands with tremendous environmental value.

In fact, America is losing two football fields of land every minute to development. Over the next 40 years, urban and developed land area is expected to increase by 39 million to 69 million acres.

To steward our environment through these uniquely challenging times requires the proven power and effectiveness of market-based forces that can go toe to toe with the incentive to develop, in areas where that pressure is greatest, and win.

Conservation of vast tracts of land by mega-wealthy individuals, in areas that face little-to-no pressure from development, is a welcome contribution to the preservation of America’s treasures. But these efforts are not the sort of frontline victories in the fight against unbridled development needed to preserve critical lands in areas where the risk is greatest.

It is on those battlegrounds — the key playing fields for the environmental wellbeing of our nation — where partnership conservation has stepped in to play a key role.

Take one example in Scotts County, Va., where a real estate partnership conserved 1,277 acres of pristine, largely forested land. The property is home to several headwater streams that drain into the Upper Clinch watershed, which The Nature Conservancy has cited as the number-one hotspot in the United States for imperiled aquatic species.

It is bordered by the George Washington and Jefferson national forests, home to more than 40 species of trees, 2,000 species of shrubs and herbaceous plants, 60 species of mammals and 100 species of freshwater fishes and mussels, including 53 federally listed threatened or endangered species.

The land is also rich in a different kind of resource: coal reserves. Without the commitment of the partnership involved and the incentive for conservation made possible by Congress, this land could have been developed as a mine, rather than remaining protected in perpetuity.

There are scores of examples such as Scotts County that highlight the value of conservation incentives that are accessible to all Americans and robust-enough to compete with the financial pressure to develop.

But the value of partnership conservation is not limited only to anecdotes, but also supported by the facts.

According to a preliminary report on land conserved primarily through a partnership conservation structure known as syndicated conservation easement transactions, more than two-thirds have “outstanding” ecological value, and more than 80 percent protect a significant natural resource and have active habitat programs. The author of those early findings is William Snape of American University and the Center for Biological Diversity, who concludes conservation easements donated by partnerships of unrelated individuals have become “a vital conservation pillar for the country” that would benefit from “intelligent changes.”

So what are those intelligent changes?

Partnership conservation, particularly conservation conducted through SCETs, faces a tremendous onslaught of scrutiny, even open hostility, from several directions.

There are limited instances of abuse, but those instances of abuse are rare — and more importantly — they are preventable without sacrificing the market-based incentive for conservation.

While seemingly everyone, on all sides of the issue, agrees the instances and future potential for abuse stem from valuation, there are some who seek to blame the structure of deals or the class of landowner — rather than target the crux of the issue.

This is misguided, and it threatens to weaken overall conservation efforts at a critical moment for our environment. We can prevent abuse and preserve Americans’ access to participate in land conservation.

The way we get there is with a focus on valuation solutions that provide taxpayers and regulators clear guidance and red lines. Partnership for Conservation has, since its founding, sought to put these kinds of solutions on the table.

Enhancing the definition of a “qualified appraisal,” for example, would produce more accurate and well-substantiated valuations. And bolstering the educational requirements to be a “qualified appraiser” would help ensure appraisers have sufficient training and expertise.

In addition, we should inject greater visibility and transparency into the system.

It would be wholly appropriate and reasonable for the Internal Revenue Service to require land trusts and other organizations receiving conservation easement donations to report descriptions and the fair market value of the donations. The organizations could also be required to provide information to the public describing the conservation values of the donations.

In addition, the IRS could adopt the National Taxpayer Advocate’s recommendations to enact policies that would make compliance simpler and easier to understand with clear language for conservation easement deeds. This can keep well-intentioned conservationists out of court and save taxpayers tremendous resources in unnecessary litigation.

There are several additional potential solutions that could strengthen the integrity of valuations, eliminate the potential for abuse and safeguard the market-based incentive to choose conservation.

What is needed is an open dialogue between stakeholders and policymakers about these solutions that puts aside the inflammatory torch and pitchforks rhetoric and talk of punitive retroactivity that dominated too much of the conversation in 2019.

With so much of the activity around partnership conservation slated to reach a head this year, and at such a critical time for the environmental wellbeing of our country, this year will be make or break for market-based conservation solutions.

https://morningconsult.com/opinions/2020-make-break-year-market-based-conservation-solutions/

Webb Creek Donates Land to Hatfield McCoy Regional Recreation Authority

In 2019, Webb Creek donated approximately 1,882 acres of property to the Hatfield McCoy Regional Recreation Authority in Fayette County, West Virginia. The Authority is comprised of over 250,000 acres of land and operates over 700 miles of outdoor trails. This area has served as a tourism destination for off-road enthusiasts across the country who come to enjoy the trails and scenery that the Authority offers. The generous donation that was given to the Authority on behalf of Webb Creek provided the opportunity to further expand and develop this off-rode park for the benefit of All Terrain Vehicles, Utility Terrain Vehicles and Off-Road Motorcycles. As Fayette County and the upper Kanawha valley region has been adversely impacted by the downturn in the coal industry, the funding, operation, and development of a fully functional trail system will provide a substantial economic development boost to the area. Jefferey Lusk, the Executive Director of the Authority, stated in a thank you letter to Webb Creek President, Ronnie Wallace “The property donation will lay the groundwork for future economic development in the Upper Kanawha region of Fayette and Kanawha counties. I know that your organization as part of this donation is truly interested in ensuring that not only the conservation easements on the property are maintained, but also that the donation creates economic opportunity for the residents of the area.”

National Taxpayer Advocate Recommends Stronger Safeguards for Conservation Deduction

by Mattie Duppler February 03, 2020

The passage of last year’s Taxpayer First Act represented a rare bipartisan accomplishment in Washington. The bill made significant steps forward in commonsense reforms to the IRS, including strengthening taxpayers’ right to appeal and modernization efforts that are long past due.

It also reflected a nonpartisan consensus that the IRS should do a better job fulfilling its mission, to: “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”

As the nation’s oldest taxpayer group, NTU has documented when the IRS has fallen short of these goals. Recently, the agency’s harassment of taxpayers claiming the conservation easement charitable deduction has all the tell-tale signs of an overtly abusive campaign. In its 2019 report released last month, the IRS’s own National Taxpayer Advocate cited the IRS’s treatment of these taxpayers as one that potentially impacted three core taxpayers’ rights as delineated in the Taxpayer Bill of Rights: the right to pay no more than the correct amount of tax, the right to appeal an IRS decision and the right to a fair and just tax system.

The Taxpayer Advocate included a discussion of conservation easement contributions under its statutorily-required list of ‘Most Litigated’ cases for the year. In it, the NTA provides suggestions to reduce the number of conflicts before the IRS. Citing the ambiguous nature of IRS enforcement of the deduction, the NTA suggested the IRS provide more explicit guidance either by implementing safe harbors or by providing precise language that would give taxpayers a template for safely claiming the deduction.

The conclusion from the NTA mirrors recommendations NTU has made that would satisfy the important IRS goals of preventing abuse and administering the code in a fair manner. It also reflects a concern we have long documented: that the IRS’s enforcement of the charitable contribution deduction for conservation easements is capricious at best. In fact, the IRS’s practice of litigating without clarification on how taxpayers can claim the deduction has the obvious effect of discouraging its use, in conflict with Congressional intent. On the heels of bipartisan Congressional acknowledgment through passage of the Taxpayer First Act that the IRS must do a better job fulfilling its mission, the agency would be wise to put the suggestions of the National Taxpayer Advocate to immediate use.

https://www.ntu.org/publications/detail/national-taxpayer-advocate-recommends-stronger-safeguards-for-conservation-deduction 

More Government Missteps on Conservation Easement Deductions

National Taxpayers Union Pete Sepp

November 14, 2019

A fundamental principle of our system is that laws and policies should change only with sufficient public input—and notice.

Imagine the chaos, unfairness, and gradual erosion of confidence in that system if such a principle didn’t exist. A police officer could pull over a motorist for obeying a 50 mph speed limit in a zone that’s been marked that way for 40 years, and claim: “forget about what the signs say, your local government decided yesterday that beginning in 2016, the limit was 30. You should have guessed this was going to happen, so you owe us three years of speeding tickets.” Such behavior – whether by passing new laws with extreme retroactive effects or by enforcing new rules through surprise – is especially abhorrent to taxpayers. Unfortunately, it is also relevant to recent moves by the Internal Revenue Service and Members of Congress to single out a group of taxpayers and stamp out longstanding policy toward tax deductions for conservation easements.

On November 12 the tax agency announced “a significant increase in enforcement actions for syndicated conservation easement transactions” – including considering criminal prosecutions, investigation of practitioners reported to the Office of Professional Responsibility, and an even more aggressive stance in court against the most minute details of easement deductions facilitated by partnerships.

As NTU has pointed out here, here, here, and here, to give just a few examples, the IRS’s behavior toward those claiming this deduction has set ominous precedents for the rights of all taxpayers. The problem is encapsulated in the IRS’s decision to make what it calls “syndicated” conservation easement deductions a “listed transaction,” through IRS Notice 2017-10 issued in December 2016.

The IRS claims that all the enforcement steps it is taking now are perfectly justified and timely, given that taxpayers were warned that these were listed transactions even before the listed transaction was issued some three years ago. (Though, actually, the agency used it as pretext to examine easements concluded as early as 2010.) Yet, as a recent article in Tax Notes (subscription) by legal expert Jenny Johnson Ware contends, the IRS has been effectively moving the goalposts of what it believes are legitimate enforcement actions against taxpayers, creating a clear conflict with two recent NTU-supported Executive Ordersthat call for regulatory reform. Johnson Ware also showed that more than 80% of the deduction values reported by taxpayers were upheld in tax court cases where decisions were made on valuation.

A specific problem is that IRS actions violate one of the Order’s instructions: agencies are to abide by the Supreme Court’s interpretation in Christopher v. SmithKline Beecham Corp. (2012) of avoiding “unfair surprise” in enforcement actions. This occurs when a government entity gives benign neglect or even asset to what are permissible acts under regulations, only to suddenly reverse course and begin punishing citizens who had no advance warning of a change in policy.

Prior to and with the release of Notice 2017-10, the IRS did indeed indicate that it would be taking a hard look at the overvaluation of conservation easements that led to tax deductions. But taxpayers could not have possibly known that the Service would increasingly begin challenging standard features of easement agreements about their perpetuity (and other matters) that the practitioner community and the tax agency had regarded as standard practice. As Johnson Ware put it:

[T]he IRS persistently works to avoid the question of the value of the easement, both in audits and litigation. In particular, the agency has been scouring the grant instruments,   looking for provisions that it argues run afoul of its newfound interpretation of perpetuity requirements. Taxpayers that have made a good-faith effort to comply with the requirements are caught in a game of ‘gotcha,’ in which the IRS disallows the entire charitable deduction based on alleged noncompliance with supposed prerequisites that it has never articulated outside litigation and that contravene the legislative purpose of section 170(h) [the conservation easement deduction].

Johnson Ware recommended that the Service “revert to its congressionally mandated role in policing these easement deductions – ensuring that taxpayers are not getting away with excessive valuations – leaving the protection of the conservation purpose to the done organization.” Otherwise, the IRS will be in violation of the Trump Administration’s Executive Orders, not to mention the basic precept of fairness.

Alas, some in Congress appear willing to compound this troublesome development, with legislation (H.R. 1992 and S. 170) that would claw back certain conservation easement deductions from 2016 onward, tying the clock to IRS Notice 2017-10. Ironically, if this legislation became law tomorrow, taxpayers would lose the value of some of those deductions taken as far back as three years ago, but the underlying easements that reduced the value of their undeveloped land would remain. Retroactivity is bad enough; selective retroactivity is worse.

It is difficult to conceive of a more negative message for taxpayers claiming this or any of a number of other deductions for charitable causes: you can lose your property rights and your tax savings years after your contribution just because Congress believes you should. So much progress toward conserving millions of acres of land thanks to the easement deduction could be seriously damaged.

Supporters of the legislation will respond with the same line of argument as the IRS has made: taxpayers and practitioners knew in 2016 that partnership conservation easement tax deductions were under scrutiny. There is a big difference between scrutiny and legality, and again, the message being telegraphed at the time of the IRS Notice issuance was that the appraisals and associated valuations of those easements were getting a hard look. When the IRS got justifiable pushback from the courts on its exotic theory that the valuation of virtually any partnership easement should be zero, the agency pursued completely unanticipated new tactics, challenging commonly-employed features of easement agreements (see above).

And then, there’s that pesky founding document of the United States in the way again. For more than 200 years, the U.S. Supreme Court has interpreted how the Constitution’s prohibition on Congress and state legislatures passing ex post facto legislation applies. One of the more recent rulings, U.S. v. Carlton (1994), held that retroactive tax laws, in particular, can be constitutional when they are “supported by a legitimate purpose furthered by a rational means.” To the Court (and NTU), one limited example of a “legitimate purpose” would be making a technical correction to ensure a law’s language was consistent with what the drafters of that law expressly intended. The Court made clear that Carlton“established only a modest period of retroactivity” at 14 months, again signaling the limits of the judiciary’s patience.

Based on this jurisprudence, it would seem apparent that the three-year retroactivity contemplated under H.R. 1992 and S. 170 is a serious outlier, subject to Constitutional challenge. In most Supreme Court rulings that have upheld retroactivity, justices have made exceptions for the fact that the laws in question did not involve punishments for criminal offenses. It would be highly suspect for the government to claim that a stripped tax deduction isn’t a punishment, or that the IRS’s criminal investigations don’t rise to a more serious level of the law.

Government missteps like these aren’t just a problem for those making them – as our filing in the PBBM-Rose Hill case attests, taxpayers’ rights can get trampled in the process. Both the IRS and Congress need to get increasingly clumsy tax policy toward conservation easements on a surer footing now.

https://www.ntu.org/publications/detail/more-government-missteps-on-conservation-easement-deductions

IRS and Congress Waging Misguided War on Environmental Tax Deduction

National Taxpayers Union Pete Sepp

April 12, 2019

Enormous bipartisan progress has been made in recent decades on environmental conservation, a policy area that has evolved as the country has grown, and its needs have changed. In particular, a thoughtful policy consensus has solidified around allowing the tax code to recognize the importance of charitable easements on property for conservation and preservation purposes.

This easement tax deduction has been a tremendous success, enabling tens of millions of acres to be set aside and maintained by private citizens and organizations. Yet this critical tool for protecting the environment is threatened by an overzealous Internal Revenue Service through heavy-handed administrative tactics. Congress needs to send clear signals to the IRS that its war on conservation easement deductions is shortsighted, but also there are unfortunately some lawmakers whose proposals would exacerbate what the IRS is doing and harm the future of private conservation.

Conservation easements, where an individual or individuals in a partnership give up their rights to develop their land in exchange for a tax deduction reflecting the value of those rights, have shown to be highly successful. Enacted in its current form in 2006, the tax deduction for conservation easements was made permanent in 2015, leading to over 27 million acres of vital habitats and historically important areas being conserved today as a result of easements.

Congress has repeatedly acknowledged the benefit of maximizing private participation in conservation in its debate over the conservation easement deduction. However, the IRS has undertaken aggressive audit and litigation actions that would stifle the use of conservation easements throughout the country, contradicting both the letter and intent of the law.

In late 2016, the IRS issued a retroactive notice intended to discourage the use of conservation easements by forcing conservation donors to make unnecessary and burdensome paperwork filings under threat of onerous, strict liability penalties. The Department of Justice has also sought to discourage use of the conservation easement deduction through broad and novel arguments, while the IRS, at the same time, has pursued a litigation strategy that argues most conservation easements should be valued at or near zero.

Worse yet, some members of Congress have cheered this blatant overreach and are exploring inquiries and legislation that would change the law to reflect the IRS’ and certain self-interested stakeholders’ misguided views.

S. 170, introduced by Sen. Steve Daines (R-Mont.) and co-sponsored by Sen. Debbie Stabenow (D-Mich.), would proscribe the deduction for the donation of a conservation easement if the tax benefit would exceed 2.5 times the amount of a participant’s basis in the partnership. In short, it reiterates a faulty accusation of conservation easements by targeting the makeup of who can participate in an easement, rather than strengthening the safeguards around what qualifies as a conservation easement.

The Senate bill, and its House counterpart, H.R. 1992, propose a tax increase retroactive to 2016 on those who have donated conservation easements.

Last month, Sens. Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.) teamed up for an inquiry into what the IRS calls “syndicated conservation easement transactions,” whereby taxpayers voluntarily join in partnerships for the deduction. In doing so, they made public their questions to 14 Americans who have participated in these partnerships, and the committee implied that there is something definitionally wrong with conservation partnerships.

In our view, the sources of potential abuse are media reports produced by groups that are adamantly opposed to the competition partnership conservation easement donations present to their business models. The committee’s action is clearly targeted at partnership conservation easements and tends to buttress the intimidation tactics used by the IRS.

The fact that Sens. Grassley and Wyden are going solely after one method of claiming a legitimate deduction that Congress itself has long affirmed reveals an agenda that needs to be refocused. If there are problems with deductions being claimed, they are issues of easement valuation and only easement valuation. Congress focusing on partnership easement deductions, rather than acknowledging the underlying valuation issue, shows that it does not yet have the proper information to legislate effectively.

There has been overwhelming bipartisan congressional support for the conservation easement deduction, but this should not preclude the IRS from transparent and fair enforcement of it – yet repeatedly the agency has declined to undertake common-sense solutions that would rectify common complaints and instead pursued hostile action intended to delegitimize and threaten conservationists and well-acting participants. This endangers conservation opportunities for all Americans and creates a chilling effect for otherwise would-be donors looking to participate in this nation’s conservation efforts.

The IRS and the members of Congress who have pursued these actions claim that the deduction has been abused to inflate land values, allowing taxpayers to exploit this particular piece of the tax code for their own gain. But rather than allowing the legislative branch to be swayed by the executive’s harsh tactics, Congress should instead focus its efforts on properly designing enforcement techniques while protecting taxpayer rights. As such, efforts should be made to realign flawed appraisal practices to ensure proper accounting of land values. Congress could also further clarify the qualifying nature of an easement, rather than leaving the changing conservation needs of the country to the interpretation of tax court judges and IRS bureaucrats.

At his confirmation hearing, IRS Commissioner Chuck Rettig told Senate Finance Committee members that with regard to conservation partnership easement transactions, “I will work with IRS officials to ensure an appropriate enforcement strategy is in place to uphold the law as Congress intended.” The heavy-handed tactics the IRS has pursued are anything but what was promised.

Members of Congress should reject any efforts to further embolden the IRS attacks on participants and stakeholders in private conservation and instead work with the agency to promote productive oversight of the federal code.

Pete Sepp is the president of the National Taxpayers Union, a nonprofit dedicated to advocating for taxpayer interests at all levels of government.

https://morningconsult.com/opinions/irs-and-congress-waging-misguided-war-on-environmental-tax- deduction/

Webb Creek’s Response to Senate Finance Committee’s Announcement

On March 27, 2019, the Senate’s Committee on Finance announced a bipartisan fact-finding effort around conservation easements donated by partnerships.  With increasing attacks by the Internal Revenue Service on donors of conservation easements over the past few years, Webb Creek supports Congressional efforts to better understand the crucial role partnerships play in preserving valuable land through the conservation easement incentive of Section 170(h) of the Internal Revenue Code.  Webb Creek recognizes the need for targeted legislation to provide better clarity to donors and to ensure donations are supported by independent and accurate valuations. We have long supported best practices within our industry, and it is our hope that this process will underscore to Congressional staff and lawmakers exactly how our projects comply with both the letter and the spirit of the law, and go through a vigorous and independent review process.  We are confident that the projects in which we have been involved will withstand close scrutiny and demonstrate clearly that Webb Creek is an exemplary industry participant.

Privately initiated conservation efforts are needed now more than ever.  Individuals, partnerships and corporations have helped to protect millions of acres over the last few decades under this program.  By being a part of the legislative process, Webb Creek will work to remedy ill-conceived policies such as IRS Notice 2017-10 and curtail unfair legislation that threatens a large share of private conservation.  Along with Partnership for Conservation, “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.”

“Thornton: Partnerships and democratization of conservation are a win for all”

I was concerned to read a recent column making accusations about conservation partnerships (“Washington moves to beef up conservation easements,” Bergen Tjossem, Thursday, Jan. 18), and I wanted to help set the record straight. As a longtime advocate in the environment and wildlife management space, I see no benefit to dividing allies who are doing the important work of land conservation, yet that’s exactly what the author attempts to do.

On many points, the author and I agree — first and foremost on the importance of land conservation and the critical role the federal government plays in incentivizing conservation easements. Bipartisan majorities of Congress have repeatedly backed this tax structure, as well as Presidents Barack Obama and George W. Bush. Washington, D.C., understands that incentivizing conservation means more conservation. And more conservation is supposed to be what we’re all working toward. Read more

The Conservation Easement Bonanza

Liberals like this tax provision because it protects the environment, conservatives like it for the tax breaks, and landholders and investors are reaping financial benefits.

What do the likes of Hollywood household names such as Steven Spielberg, George Lucas, Robert Redford and Harrison Ford have in common with business leaders such as Ted Turner and T. Boone Pickens? They all have been generous donors of conservation easements that protect land from future development in perpetuity. While their respective reasons for protecting land may vary, many people are drawn to protect their land because donating a conservation easement is quite often the perfect blend of doing good while reaping some financial benefit.
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